According to the Bundesbank’s Weekly Activity Index (WAI), Germany is already in a technical recession. The German CPI numbers for March confirmed the risks of ‘stagflation’. The headline CPI surged 2.39% m/m (on a calendar and seasonally adjusted basis) according to Bundesbank data, the largest monthly increase since March 1951.
On a harmonised basis, German CPI inflation accelerated to 7.6%. Inflation in Greece (+8.0%) and Spain (+9.8%) was even higher.
The European Commission business and consumer survey results for March showed a breakout in business price selling and consumer inflation expectations. The squeeze on real incomes will be severe. The financial situation of households is expected to deteriorate over the next twelve months.
For the Eurozone economy, Spain may be a barometer, to see if a potential investment surge can offset a slowdown in consumption. Spain has been a big beneficiary of EU recovery funds and is seen as capable of exploiting the renewable energy transition to its benefit. Prime Minister Pedro Sanchez has announced an €11bn investment in microchips and semiconductors, to put Spain in the “vanguard of industrial and technological progress”.
The jobless rate in Spain fell to 12.6% in February, the lowest since September 2008. But the March data showed a reversal, with unemployment rising 25.7k, the first monthly increase since April 2021. The decline over Q1 was still 85.3k. But the March rise in the jobless total is a warning: stagflation will hit jobs.
