While recent economic data across the board suggest that growth was strong in Q2, leading indicators (business climate, household confidence) were more mixed in June, pointing to a more difficult Q3. This is particularly the case in the US, where even the ISM non-manufacturing index deteriorated sharply in June, while in Japan and the UK, growth should return to a more normal level after a very favourable Q2 (and benefiting from rebound effects in Japan, after a more difficult Q1).
The difficulties in the Eurozone manufacturing sector are intensifying. Industrial production fell again in May, by -0.6% m/m (-0.8% m/m for the manufacturing index). The deterioration in the PMI indicators for the euro area in June does not bode well for Q3, with a fall in the manufacturing index (-1.5 points to 45.8) and a decline in all the subcomponents (production, employment, new orders, stocks of purchases, delivery times). The input price index (which is not included in the calculation of the aggregate manufacturing index) is back above the expansion zone for the first time since February 2023. This is consistent with the trend in producer prices, for which the monthly decline has been slowing for several months and is now close to zero
Growth in exports to the United States (Germany's biggest export customer) has continued to drive German foreign trade in recent years, while trade with the eurozone and China has been relatively stagnant. For the past four months, however, the German PMI for export conditions has been above the threshold of 50 (albeit lower in June at 50.8 than in May at 51.9), suggesting a more global dynamic.
The French economy is once again feeling the weight of economic uncertainty, as shown by the rebound in the Banque de France's uncertainty indicator, which in July reached its highest level since autumn 2022 (energy crisis). This could weaken a business climate that is already a little less favourable in France (composite PMI at 48.8 in June) than in the eurozone (PMI above 50 for the past four months).
Italian inflation stabilised below the 1% mark in June (at 0.9% y/y) due to the still significant deflation in the energy component (-8.6% y/y), and the slowdown in food prices (2.1% y/y in May; -1.8 pp over three months). Although the producer price index is still negative year-on-year (-3.5% in May), it is beginning to strengthen on a monthly basis (+0.3% m/m), suggesting that the disinflationary phase in consumer prices could be reversed over the coming months.
2024 is shaping up to be a record year for tourism. Between January and May, the number of tourist arrivals in Spain reached 33.2 million, far outstripping the level recorded during the same period in 2023 (by 13.6%). Tourist spending (+21%), which significantly boosted services exports in Q1 (+10.8% q/q), is likely to have continued to do so in Q2. Nevertheless, despite its undeniable effects on Spanish growth, mass tourism is becoming a source of tension in the country due to its impact on access to housing and resources. This has led Barcelona City Council to introduce a plan to stop renewing tourist apartment licences, which will lead to their phasing out by 2029.
Expectations in terms of growth for Q2 remain favourable: we expect it to be +0.6% q/q compared to +0.5% q/q for the Atlanta Fed's GDPNow. However, several elements suggest a more difficult Q3. The ISM surveys in June returned a negative signal: mixed for the manufacturing component, which deteriorated marginally, to 48.5 (-0.2 points), against a backdrop of falling production (48.5, -1.7 points), more marked for the non-manufacturing index, which fell to 48.8 (-5.0 points), against a backdrop of a correction in activity (49.6, -11.6 points), and a deterioration in new orders (47.3, -6.8 points). The NFIB (Small Business Optimism Index) again rose only slightly in June (91.5, +1
The rise in activity is welcome news for the recently elected Labour Party. According to the ONS, the monthly figures for real GDP (or, to be more precise, real value added) show that UK activity rose by 0.4% m/m in May, following a levelling-off in April. Although the manufacturing sector (+0.4% m/m) and construction (+1.9% m/m) were more supportive of growth than services (+0.3% m/m) in May, it is the latter that have been driving activity over the past year, with a rebound in transport and logistics (+7.3% y/y) and a clear acceleration in ‘professional, scientific and technical’ activities (+4.1% y/y).
Japan's economic growth should benefit from a technical upturn in Q2: we expect growth of 0.5% q/q after the contraction in Q1 (revised downwards to -0.7% q/q). The outlook remains negative – particularly for demand, despite the tax cuts introduced in June – while household consumption spending contracted by -1.8% y/y in May. Furthermore, while wage increases (excluding bonuses) reached their highest level since 1993 in May (+2.5% y/y), a sign of the growing transmission of negotiated wage increases (+5.1% y/y according to the Rengo trade union), real incomes are still not rising (-1.4% y/y).
