The first indicators available for January point to a continuing weak start to the quarter (after contraction in GDP of -0.3% q/q in Q4 2023), hence our forecast of a further drop in GDP of -0.1% q/q in Q1. Manufacturing production (up 1% m/m in January) remained 1.5% below the figure seen in November, due to a sharp drop in automotive production (down 10% in January from the level seen in November). This downturn can be explained by supply problems linked to the situation in the Red Sea (which also affected the sector in February).
Business climate indicators, still deteriorated in January, clearly reflected this weakness. The upturn in these indicators in March was mainly driven by the expectations component, which improved due to the likelihood of an easing of the ECB's monetary policy. However, the IFO Business Climate Index linked to the current situation is also improving: standing at 88.1 in March, it has returned to a level close to that seen in December, bringing an end to a two-month period of difficulty.
For the time being, this rebound could be explained by the dissipation of negative effects (difficulties in the automotive sector, impact of the fiscal consolidation announced in December), rather than by an actual recovery. In fact, new factory orders have not recovered (for the most part) and have even fallen for domestic orders for capital goods (negative signal in terms of corporate investment). At the same time, household confidence remains low (-29 in March), close to the level seen in February and below that recorded between May 2023 and January 2024.
This lack of household confidence is happening despite significant disinflation (2.7% y/y on the harmonised index in February 2024 compared to 6.4% y/y in August 2023) but is less noticeable on the underlying index (3.3% y/y in February 2024, a level that has remained almost unchanged over the past 3 months due to stabilisation of inflation on services).
At the same time, the good performance of the labour market is still relevant, against a backdrop of labour shortages which remain significant or even greater in certain sectors (including the automotive sector): January 2024 saw the strongest net job creation (54,000) in almost a year.
Article completed on 26/03/2024
