31 July 2023
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Germany GDP lingers while inflation remains high

By Edward Bell

Inflation data from Germany for July show price pressures remain acute for the Eurozone’s largest economy while its Q2 GDP performance showed Germany was lingering. CPI inflation for July rose by 6.2% y/y, in line with market expectations and a slowdown from the 6.4% recorded a month earlier. Inflation has slowed from a peak of 8.8% recorded in October last year but is only easing at a far slower pace than a peer economy like the US. Estimates of GDP for Q2 showed Germany’s economy stagnated, underperforming market expectations of paltry growth of 0.1% q/q. Germany’s economy has managed to move out of recession but only barely.

The poor performance of Germany’s economy contrasts with France where the GDP print beat expectations in Q2, rising by 0.5% q/q and an acceleration from 0.2% in Q1. Inflation is also considerably slower in France than in Germany, rising by 4.3% y/y in July down from 4.5% in June. Eurozone wide inflation is expected to show a deceleration to 5.3% y/y for July when released later today.

Data from the US was positive at the end of the week with alternative price gauges to the CPI all showing signs of slowing down. The PCE deflator, the inflation metric that the Fed actually targets, eased to 3% y/y from 3.8% a month earlier while core PCE fell to 4.1% y/y from 4.6% a month earlier. The employment cost index also dropped slightly for Q2, down to 1% from 1.2% previously while personal spending adjusting for inflation rose by 0.4% m/m in June, up from 0.1% for May. The data gives support to a US economy that is absorbing the impact of monetary tightening and slowing in line with the Federal Reserve’s expectations. The July non-farm payrolls report will be released at the end of the week with 200k jobs expected to have been added.

China’s manufacturing sector extended its slump in July with the official PMI for the sector printing at 49.3, its fourth month in a row below the 50 neutral level. The July estimate did come in slightly better than market expectations and was an improvement from the 49 level recorded in June. The non-manufacturing PMI, which includes services and construction, eased to 51.5 from 53.2 a month earlier helping to bring the composite to 51.1.

Today’s Economy Data and Events

  • 13:00 EC GDP SA y/y Q2: forecast 0.5%
  • 13:00 EC CPI y/y July: forecast 5.3%

Fixed Income

  • US Treasuries pulled higher at the end of the week with the 2yr UST yield down 5bps to 4.8744%. The 10yr UST yield fell nearly the same amount, closing at 3.9507%. Markets are pricing in about a 20% chance of another hike at the September meeting even as the US economy continues to show signs of resilient to tighter monetary policy so far.
  • European bonds dropped on Friday with yields higher across the Eurozone’s main economies. Bund yields added 2bps to 2.489% while French bond yields added more than 3bps to 3.027%. Gilt yields also nudged higher by 1bps to 4.316%.


  • It was a mixed close to the week in currency markets with EURUSD adding 0.3% to settle at 1.1016 while USDJPY rose by 1.2% to 141.16. GBPUSD added 0.4% to 1.2851.
  • Commodity currencies were consistently weaker against the dollar. USDCAD rose by 0.1% to 1.3237 while AUDUSD fell by 0.9% to 0.665 and NZDUSD dropped by 0.4% to 0.616.


  • Global equity markets had a strong week last week, buoyed by strong US growth data, dovish hikes from key central banks, and some signs of stimulus coming from China. In East Asia, the Hang Seng ended Friday up 4.4% while the Shanghai Composite gained 3.4% w/w. Gains were softer in Japan as language around greater flexibility on yield curve control weighed on equities at the close of the week. The Nikkei ended Friday 1.4% higher w/w.
  • In Europe, the composite STOCXX 600 ended the week 1.2% higher, with some soft data and a gloomier outlook from the ECB moderating the gains there. The CAC added 0.6% w/w and the DAX 1.8%, while the UK’s FTSE 100 lagged with a 0.4% gain from the previous Friday.
  • In the US, the Dow Jones, the S&P 500, and the NASDAQ added 0.7%, 1.0%, and 2.0% w/w respectively.
  • Locally, the DFM gained 1.3% w/w and the ADX added 1.4%.


  • Oil prices rose for the fifth week in a row last week with Brent adding 4.8% over the course of the week to USD 84.99/b while WTI added 4.6% to USD 80.58/b. Both contracts were higher on Friday by 0.9% and 0.6% respectively.

Written By

Edward Bell Head of Market Economics

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