When growth is slowing, risks tend to be tilted to the downside because households and companies adopt a more cautious attitude in their spending and investment decisions. At the present juncture, it is also difficult to see what could create an upside surprise. To the contrary, according to the IMF, there are several downside risks: the cost of energy, the problems in Chinese real estate, persistent disruptions in the labour market. Financial conditions could deteriorate. Already today they create a discomforting environment, with the risk of a non-linear impact on growth. It illustrates the challenge of central banks with growth-at-risk being at the low end of historical ranges and inflation at the other extreme.
While the government has already put in place a series of measures totalling 65 billion euros (equivalent to 1.8% of GDP), on 29 September Olaf Scholz announced “a double whammy”, to use his own words, with the introduction of measures to help with the cost of energy, up to a maximum amount of 200 billion euros. It is not expected that the entire budget will be used up; initial estimates suggest that half of the maximum budget would be utilised. This large-scale plan (5.5% of GDP) should make it possible to subsidise electricity consumption for households and businesses (around 80% of their usual consumption) and to maintain a reduced VAT rate of 7% on gas until spring 2024.
The detailed inflation figures for September in Spain confirm the changes in price momentum over recent months. The rise in energy prices, while still very high (22.4% y/y), has eased since last March – at that time the increases had peaked at 60.9% y/y. Conversely, the annual CPI increase for food and non-alcoholic beverages has accelerated (14.4% y/y compared to 6.8% y/y in March). As a result, and for the first time since the outbreak of the war in Ukraine, the rise in the cost of food products has become the leading contributor to inflation, by 3.4 percentage points (p.p.), compared to 2.4 p.p. for energy. However, harmonised total inflation fell from 10.5% in August to 9.0% in September.
The growth in the number of new Covid-19 cases continued for the fourth consecutive week in Europe. According to the latest data from Johns Hopkins University, European countries have recorded 59% (1.92 million out of a global total of 3.25 million) of new Covid-19 infections diagnosed in the last seven days (chart 1). In that region, the highest number of infections was recorded by Germany (632,167, +54%), followed by France (382,191, +21%), Italy (282,347, +26%), Russia (156,489, -26%) and Austria (95,894, +20%). The five countries account for 81.4% of new cases in Europe.
