In June, the main OECD economies experienced divergent trends, raising the question of the tipping point between a situation where growth continues – with inflationary pressures requiring further monetary tightening – and another where it slows down further and where the fall in inflation means that an end to rate hikes can be envisaged.
Initially estimated at +0.1% q/q, growth in the eurozone in Q1 2023 is now slightly negative, at -0.1% (after a similar drop in Q4 2022). This downward revision was driven by that of German growth. The succession of two quarters of decline in GDP defines a “technical” recession, which it is at this stage: the contraction in GDP is small and it is not broad-based to all growth components neither to all the Member States.
Business climate indicators in Germany have deteriorated in recent months, including the IFO survey (91.7 in May, 5 points below its long-term average, compared to 93.4 in April) or the ZEW index. The latter recovered slightly in June (-8.5 compared to -10.7 in May) but remained very negative and continued to deteriorate in most industrial sectors, as a result of a fall in demand (the current situation index fell at the same time from -34.8 to -56.5 between May and June).
French economic indicators point to a slowdown in growth. INSEE’s business climate in the manufacturing industry has deteriorated. It stands at 101 in June, below its average level during the Q1 (104) and was in May (99) below its long-term average (100) as well as wholesale trade (94) and non-automotive retail trade (94). In particular, the balance of opinion on order books in the manufacturing sector was in June (-17) below its levels observed in December (-15) and March (-13).
The Italian economy surprised positively in the first quarter of 2023, with real GDP growing by 0.6% q/q. However, we expect this good performance to be followed by a slowdown in the second quarter and then a one-off contraction in the third quarter.
Despite the support of tourism, which has been at levels close to those of 2019 since the beginning of the year, the effects of the rise in interest rates and the drop in household purchasing power on the Spanish economy should worsen over the course of the year.
According to the Federal Reserve Bank of Atlanta's GDPNow estimate, US growth stands at +0.5% q/q in Q2 2023, a figure slightly higher than our forecast (+0.4% q/q) and slightly better than Q1 (+0.3% q/q). As Q1 growth was largely driven downwards by the negative contribution of inventories (-0.5 pp), we can expect a more favourable development in Q2. Although a further decline in residential investment is hardly in doubt (it would be the 9th in a row), the resistance of household consumption and non residential investment will be closely scrutinised.
British economic activity recovered by 0.2% m/m in April. This recovery follows a 0.3% m/m contraction in March. This should be put into perspective since monthly GDP remains 0.1% below the level reached in January and February. The services sector returned to growth (+0.3% m/m) after two months of contraction.
Real GDP growth rose in the last two quarters in Japan, but is still slightly below 2019 levels. However, a slowdown in activity is expected from Q2 and until the end of 2023.
