World exports of goods experienced a slight rebound at the turn of the year, while the recovery in services exports was slowed by the expansion of the Omicron variant, the European Central Bank (ECB) said.
After a significant contraction in the third quarter of 2021, non-euro area goods export volumes increased by 1.2% mom in October, with deflated nominal exports suggesting a further monthly increase in November.
In particular, the expansion was pronounced in the machinery and equipment sector and in the chemical industry, possibly reflecting a slight easing of supply bottlenecks.
With stagnation not expected to ease significantly in the short term and forward-looking indicators showing no signs of improvement, the increase in export volumes seems likely to be only temporary.
At the same time, euro area import volumes rose 1.6% mom in October, with particularly strong nominal increases seen in both October and November.
On the side of world services exports, after gradually strengthening thanks to a temporary rebound in travel activity, external sales indicators show signs of weakening at the end of the year as the new wave of the pandemic hit the exports of travel and high-touch services.
Also, from the ECB’s perspective, corporate investment is likely to have grown modestly in the fourth quarter, despite headwinds from supply-side disruptions.
In the capital goods sector, October and November combined production increased 0.2% from the third quarter, and the production PMI points to an expansion of activity in the fourth quarter.
However, confidence weakened compared to the third quarter, suggesting that the supply of capital goods continues to suffer from bottlenecks.
Transportation equipment production continues to be particularly affected by shortages of semiconductors and congestion in supply chains.
As a result, capacity utilization has decreased, inventories of near-finished goods have increased, and supplier lead times have continued to lengthen across the industry, albeit to a declining extent.
Production of other equipment has remained more robust, with high capacity utilization and a contained backlog of finished goods.
In general, the available indicators suggest that business investment grew modestly in the fourth quarter.
Looking ahead, business investment growth is expected to pick up further, with the European Commission’s survey for the capital goods sector pointing to both confidence and export order books at record levels in January.