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The German economy may be showing signs of a life after more than half a decade of stagnation.
Europe’s largest economy has suffered a series of recent blows, including a surge in energy costs after Russia’s full-scale invasion of Ukraine, higher tariffs on its exports to the U.S and fierce competition from China in key sectors such as automobiles.
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Don Nico Forbes
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Moody’s boosted Italy’s sovereign-credit rating on expectations for a decline in government debt.
The ratings agency on Friday upgraded Italy’s rating one level to Baa2 from Baa3. The outlook was revised to stable from positive.
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Kelly Cloonan
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Regarding Quico Toro’s essay “ Another U.S. Attempt to Topple Maduro Would Be a Disaster” (Review, Nov. 8): Venezuela’s economic collapse and migratory crisis began in 2013, at least four years before the U.S. imposed broad U.S. sanctions. From 2013 onward, Venezuela experienced the highest inflation rate in the world and a precipitous decline in gross domestic product, driven directly by the devastating economic policies of Hugo Chávez and Nicolás Maduro, including widespread nationalizations, reckless monetary and fiscal policies and the implementation of universal price and currency controls.
Mr. Toro neglects the consequences of the Biden administration’s policy of accommodation. Far from improving conditions, diplomatic passivity has allowed the government to dig in its heels, intensifying repression and exacerbating the humanitarian crisis.
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SHANGHAI—Signs of weakness in China’s economy stretched into October, with one measure of investment notching the sharpest slowdown in years.
Momentum in retail sales and industrial production slowed, while investment and the property market continued to struggle, according to data released Friday by China’s National Bureau of Statistics.
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Hannah Miao
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China’s economic growth momentum slowed in October, weighed down by a high base from the previous year when Beijing rolled out stimulus measures to support a cooling economy, according to official data released on Friday.
Industrial production rose 4.9% in October compared to a year earlier, a decline from the 6.5% increase in September, the National Bureau of Statistics said.
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GDP rose 0.1% in the third quarter, compared with 0.3% in the second, amid uncertainty about the government’s budget and the impact of a cyberattack on a major carmaker.
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Don Nico Forbes
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China’s leaders have again pledged to give consumption a bigger role in driving growth, but economists remain unconvinced.
The emphasis given to technological self-sufficiency and advanced manufacturing has raised doubt over how high consumption is on policymakers’ To Do list.
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OTTAWA—Bank of Canada Gov. Tiff Macklem told lawmakers Wednesday that central-bank policymakers believe the current rate policy appears appropriate to balance inflation risks while providing the economy with support.
His opening remarks before the Canadian legislature’s finance committee largely mirrored his comments when announcing a quarter-point cut last week, taking the benchmark interest rate to 2.25%—or 2.75 percentage points lower over a 16-month period.
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Paul Vieira
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The European debt crisis of the early 2010s created an image of a continent cleaved in two: The fiscally responsible core countries led by Germany versus the spendthrift southern periphery of Portugal, Italy, Greece and Spain—disdainfully dubbed PIGS.
Nowadays, there has been a role reversal. Europe’s three biggest economies are stuck in a cycle of weak growth, leading to widening budget deficits. France is the epicenter of this shift and remains mired in a budget and political crisis, while the U.K. is eyeing tax hikes to try to narrow the gap and avoid spooking markets. Famously frugal Germany and the Netherlands are taking on debt, albeit from lower levels.
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Chelsey Dulaney
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The central bank place will more emphasis on developments that could upend its expectations and less on forecasts that convey too much certainty about the future.
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Paul Hannon
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OTTAWA—The Bank of Canada signaled it has emptied its toolbox to help an economy hurting from the trade row with the U.S.
Canada’s central bank cut its main interest rate on Wednesday, to 2.25%, and said the rate is “at about the right level” to keep inflation intact at its 2% target. It’s taking this approach even though its own economic outlook is bleak over the next two years.
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Paul Vieira
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SINGAPORE—China said economic momentum decelerated to its slowest pace in a year, putting Beijing on alert in the midst of hardball trade negotiations with the U.S.
China said its gross domestic product expanded 4.8% in the third quarter of 2025 compared with a year earlier, down from 5.2% growth in the second quarter. Over the first nine months of the year, China’s economy expanded 5.2% from the year-earlier period, according to the National Bureau of Statistics. That means that Beijing is largely on track to hit its official target of around 5.0% growth for 2025.
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WARSAW—For more than a decade, Poland has prepared for the worst-case scenario: becoming the front line in a war between Russia and the West.
With an eye on growing Russian aggression in Europe, Warsaw’s military planners built out the country’s armed forces, turning it last year into the largest European military in the North Atlantic Treaty Organization. It ramped up military spending to 4.7% of gross domestic product this year—the highest in the alliance. A multibillion-dollar spending spree has put Poland among the biggest buyers of U.S. weapons.
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Thomas Grove
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By Ed Frankl
Germany’s central bank lowered its growth forecasts for the country’s economy for the next two years due to lower global demand, according to a twice-yearly report published Friday.
The Bundesbank now expects gross domestic product growth at 0.4% and 1.2% for 2024 and 2025, down from 1.2% and 1.3%, respectively, under previous forecasts made in June.
The bank penciled in for GDP to fall 0.1% in 2023 as a whole, and also predicts growth at 1.3% in 2026 in the fresh forecasts.
Weak foreign demand is the main drag on the country’s key industrial sector, while restrained private consumption and higher financing costs are dampening investment, it said.
However, the economy will benefit from a robust labor market, strong wage growth and falling inflation that should help bring about a recovery in household spending, it added.
“From the beginning of 2024, the German economy is likely to return to an expansion path and gradually pick up speed,” Bundesbank President Joachim Nagel said.
This comes as inflation is set to fall faster than previously expected. The Bundesbank sees harmonized annual inflation–based on European Union metrics–at 2.7% and 2.5% in 2024 and 2025, respectively, down from the 3.1% and 2.7% it predicted in June.
“Monetary policy tightening is increasingly yielding results,” Nagel said.
However, inflation is still set to be 2.2% in 2026, above the 2% target of the European Central Bank, which has recently raised rates at an unprecedented speed. The ECB held rates at a record high at its meeting this week.
Meanwhile, the latest turmoil related to the German government’s budget–which for 2024 was only agreed to this week–won’t significantly alter the fiscal and macroeconomic outlook, according to the Bundesbank.
However, there is still uncertainty regarding future fiscal policy, in particular for 2025 and in terms of the country’s transition to cleaner energy, it said.
Write to Ed Frankl at edward.frankl@wsj.com
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That was close.
After the U.S. unemployment rate climbed to 3.9% in October, stoking fears that the labor market might finally be starting to crack under the weight of the Federal Reserve’s interest-rate hikes, economic data released Friday showed that unemployment retreated to 3.7% in November.
That means the Sahm rule, an indicator devised to sniff out a recession long before one is officially declared, is now even further from triggering, after nearly brushing up against the threshold last month.
And according to the rule’s creator, former Federal Reserve economist Claudia Sahm, perhaps it won’t trigger, at least not during this cycle.
“I am more optimistic today that it doesn’t trigger,” Sahm told MarketWatch during a phone interview Friday.
Wall Street and social media were abuzz with talk of the Sahm rule last month as the rising unemployment rate sparked a debate about whether a recession had begun.
The increase brought the Sahm rule indicator to 0.30, according to data available on a Federal Reserve branch website, bringing it closer to triggering than at any time during the past two years. It also sparked a brisk conversation among professional economists and amateur market watchers about what the Sahm rule is, how it works and why investors should care about it.
After Sahm declared that the rule hadn’t triggered, some on social media accused her of misrepresenting her own rule, said the economist, who now runs her own consulting business.
She was surprised by this, she told MarketWatch, since she thought the rule’s simplicity was one of its most important features.
It was initially devised with lawmakers in mind, intended to become an automatic mechanism to send out stimulus checks more quickly as a recession begins, thus helping to shield workers from some of the worst financial consequences.
But the debate has helped her realize that perhaps the rule’s dynamics aren’t clearly understood by all.
To try to remedy this, she published a step-by-step guide explaining how the Sahm rule is calculated, or at least how Sahm and the Fed calculate it. Economists are free to devise their own variations on the rule. Here are some key points:
The logic undergirding the rule is pretty straightforward, Sahm said: The rule is grounded in the notion, supported by historical data, that once employment starts to rise, it often snowballs.
Typically it increases by anywhere between 4 and 6 percentage points during a recession, Sahm said.
But just because the rule has held in the past doesn’t mean it always will. Sahm has previously said that she wouldn’t be surprised if the rule were to break because of pandemic-related distortions in the global economy.
She affirmed on Friday that she still believes this to be the case, although she doubts the rule will trigger this cycle.
That is largely because, as Sahm sees it, the rise in the unemployment rate has been driven not only by slowing job creation, but by workers returning to the workforce, a sign that supply-and-demand dynamics in the U.S. labor market are coming back into balance, and that maybe employers won’t need to be as precious about hiring in the future.
“If [the rebalancing] happens fast enough, then we won’t trigger. But if it slows down, then maybe we’ll trigger, but we’ll likely see unemployment move sideways before coming back down,” Sahm said.
Labor Department data showed the U.S. economy added 199,000 jobs in November, surpassing economists’ expectations for 190,000 new jobs. The number was also higher than the 150,000 created during the previous month.
See: Job report shows gain of 199,000 in November. Wages are still hot.
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By Ed Frankl
Germany’s economy contracted 0.1% from July to September, confirming prior estimates, as Europe’s largest economy languishes in a likely recession, according to data from the country’s statistics office released Friday.
It matched expectations of economists polled by The Wall Street Journal. GDP contracted 0.4% on year, on a price…
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By Joshua Kirby
The U.K. economy stagnated in the third quarter for the first time this year, after slight growth in September offset a decline at the start of the quarter.
Gross domestic product was flat between July and September compared with the previous three-month period, when the economy grew slightly, as it had in the first quarter, figures from the Office for National Statistics showed Friday.
Economists had expected GDP to decline slightly, according to a poll carried out by The Wall Street Journal, though the flat growth was against an August figure that was revised down slightly to 0.1% growth from 0.2% previously.
In September, the economy grew 0.2%, driven mainly by services growth. This helped offset a 0.6% decline in July.
Compared with the same quarter a year ago, the U.K. economy grew 0.6%, the figures showed.
Write to Joshua Kirby at joshua.kirby@wsj.com; @joshualeokirby
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The U.S. economy has not only defied widespread predictions of a sharp slowdown. It’s grown even faster.
But that doesn’t mean a recession is far away. The U.S. has often experienced fast growth shortly before the bottom fell out.
Let’s start with the good news.
Gross domestic product, the official scorecard of the economy, looks likely to top 4% or even 5% annual growth in the third quarter. The government will release its preliminary estimate on Thursday morning.
Economists polled by The Wall Street Journal predict 4.7% GDP in the third quarter.
Other top forecasters see even faster growth. S&P Global estimates 5.6% GDP and the Atlanta Federal Reserve GDPNow forecast projects 5.4%.
How fast is that? GDP only topped 5% once from 2010 to the start of the pandemic in early 2020.
This is not what was supposed to happen.
After solid 2%-plus growth in the first and second quarters, the economy was widely expected to slow down in response to rapidly rising interest rates.
The Federal Reserve has jacked up borrowing costs in the past year and a half to try to tame inflation, a strategy that typical depresses consumer spending and business investment. Those are the dual engines of the economy.
To some extent the Fed has succeeded. Home sales and construction, for instance, have tumbled due to the highest mortgage rates in decades. And manufacturers have taken a hit as customers curtailed purchases of goods and big-ticket items.
The annual rate of inflation, meanwhile, has tapered to 3.7% as of September from a 40-year high of 9.1% in 2022.
Still, spending and investment have not dropped off nearly as much as expected. And there are two reasons for that.
The first is a strong and ultra-tight labor market, with unemployment hovering just below 4%. Most Americans who want a job have one, and as a result, they have been able to keep spending. Travel, recreation, leisure and hospitality have been the big winners.
S&P Global estimates a flush of consumer spending in the third quarter will account for just over half of the growth.
The industrial side of the economy, for its part, has been the beneficiary of tens of billions of dollars in subsidies from the Biden administration to support green energy and bring home more manufacturing.
The U.S. has also ramped up military aid to Ukraine and has to replace outgoing equipment, weapons and ammunition.
All the government money has helped to keep manufacturers from falling too far down the well. Government outlays could add as much as 0.6 percentage points to third-quarter GDP.
Making the third quarter look even better, the U.S. trade deficit fell sharply and is likely to add 1.0 percentage point or more to GDP.
A small rebound in the production of inventories, or unsold goods, would be the icing on the cake.
So the economy is doing great, right? Maybe not.
Consumers probably can’t keep spending at their current pace since their incomes are barely rising faster than inflation. Businesses are proceeding cautiously because of higher borrowing costs. And banks are more reluctance to lend.
Other restraints on the economy include higher gasoline prices and a surge in long-term interest rates that make it far more expensive to buy houses, cars, appliances and the like.
That’s why many forecasters believe the economy start to soften in final months of 2023. S&P Global, for instance, initially projects 1.7% growth in the fourth quarter.
Nor does the third quarter’s heady growth rate suggest there is no reason to worry about a recession. The economy has expanded rapidly just before the onset of prior recessions.
The economy grew at solid 2.5% pace right before the 2007-2009 Great Recession, for example. And GDP grew a frothy 4.4% in the first quarter of 1990 just several months before a recession started.
Many of the same economic headwinds, it turns out, are still in place that led to widespread Wall Street predictions of recession earlier in the year.
Indeed, some forecasters such as the Conference Board still insist a short recession is likely in 2024. Other economists are also on guard.
“I still believe a recession is coming — though far less severe than the 2008-2009 event,” said chief economist Steve Blitz of TS Lombard.
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