As we enter 2023, the economies of the major OECD countries continue to show signs of resilience.
In January 2023, according to S&P Global PMI data, the business climate continued to improve for the third month in a row, bringing the composite index just above the 50-point expansion mark for the first time since June 2022. This recovery applies to both the manufacturing sector and services, and it is good news. We regard it as a sign of relief following over-pessimism at the end of 2022 fuelled by fears about energy supply and soaring prices. A relapse cannot be ruled out.
Business climate indicators show relative improvement (for example, the IFO rose from 84.3 in September 2022 to 91.1 in February 2023), attesting to better than expected business activity, particularly as fears of a worsening energy crisis did not materialise. However, these indicators are still below normal, in line with negative growth in Q4.
According to Insee, the business climate in the French manufacturing industry was stable over the last few months. Deterioration was seen in services, albeit gradual, with the index sliding from 107 in August to 104 in December, before climbing back up to 106 in February. This picture is in keeping with a slower pace of growth, while avoiding recession.
Italy’s job market is taking longer to recover than in neighbouring countries. However, employment is close to topping the peak reached in June 2019, with a gap of just 7,000 jobs in December 2022. The employment rate (15 to 64-year-olds) has reached a new record of 60.5%, while unemployment remains stable at 7.8%. Youth unemployment (15 to 24-year-olds) is at its lowest since September 2008.
The improved business climate points to a risk of an upwards revision in our current estimate of contraction in Spain’s GDP in Q1 2023. The composite PMI topped the 50-point threshold in January at 51.6, five months after slipping below this level. This rebound can be attributed to services (52.7), while further contraction was seen in manufacturing activity (48.4). While manufacturing production increased by 0.8% m/m in December and 2.8% in 2022, it has only just closed the gap relative to 2019.
Signs from the ISM business climate surveys were contrasting in January, with a further decline in the manufacturing sector index, going deeper into the contraction zone at 47.4, while the non-manufacturing sector made a strong rebound to 55.2, cancelling out almost its entire December fall.
Following a 0.5% m/m fall in GDP in December according to the ONS, activity in the UK deteriorated in January before making a strong rebound in February according to the PMI survey, particularly in the service sector. The PMI was 49.2 for the manufacturing sector and 53.3 for services. Among the bad news, company insolvencies (up 59% y/y in 2022) reached their highest level since 2009.
Surveys of Japanese services companies (Services PMI, Economy Watchers Survey) offer little visibility, having fluctuated up and down for several months. Manufacturing sector indices show a clearer trend, with gradual deterioration in activity despite the significant reduction in tensions in production chains closely linked to Japanese manufacturers. The manufacturing PMI remained below the expansion threshold in January at 48.9, having been in near constant decline for the last 10 months.
