Our nowcasts for Q1 show moderate growth in the euro zone (+0.2% q/q) and in France (+0.1% q/q). The Atlanta Fed's GDPNow, on the other hand, suggests the risk of a significant slowdown in US growth in Q1. In other countries, our forecasts are for continued outperformance in Spain, rebounding growth in Italy and the UK, and moderate growth in Japan. In Germany, growth is likely to remain weak in Q1, with the upside risks associated with the next government taking office more likely to affect Q2. Chinese growth is exposed to downside risks.
The unemployment rate held steady at 6.2% in January, an all-time low. Declines are most marked in southern Europe and Ireland, while the unemployment rate is relatively stable in France and Germany. Negotiated wages rose by 4.1% y/y in Q4 2024, less than in Q3 (5.4% y/y) but still well ahead of inflation.
The IFO business climate index remained stable in February compared with January, at 85.2, and remains close to the low recorded in November (84.7). It is the situation of industry that is having the greatest impact. Industrial output, including construction, contracted again, by 0.7% q/q in Q4 (the 6th fall in 7 quarters). However, January's figures show a slight rebound (+0.6% month-on-month on the 3-month moving average).
Household confidence rebounded from 89 in December to 93 in February (95 in September, 100 on long-term average). The balance of opinion on past price trends, at -5 in February, reached its lowest level since July 2021. On the other hand, the balance of opinion on fears of unemployment rose again in February (+55, compared with +29 in September), fuelling the opportunity to save.
Intentions to make major purchases in the coming year are at their highest level since July 2021. This should enable private consumption to further buoy Italian growth. For the time being, hard data remains disappointing: new vehicle registrations are slowing (-3.3% 3m/3m in February), as are retail sales volumes (-0.4% 3m/3m in January).
The composite PMI (55.1 in February compared with 54 in January) was buoyed by the services component (PMI at 56.2; +1.3 pt). Nevertheless, industrial activity is deteriorating sharply, with industrial output down by 1% y/y in January (-22.8% y/y for vehicles) and the manufacturing PMI falling below 50 for the first time in over a year in February (49.7; -1.3 pt).
Household sentiment deteriorated in February according to the Conference Board (98.3, -7.0 pts) and even more in March according to the University of Michigan (57.9, -6.8 pts), dragged down by worsening expectations. According to the University of Michigan survey, the jump in 1-year inflation expectations (+4.1%, +1.0 pp) was accompanied by a 30-year record for 5-year expectations (+3.5%, +0.3 pp).
The GfK index rose in February (+2 points to -22), but did not erase January's fall. The balance of opinion on the one-year financial outlook is back in positive territory. Retail sales rebounded by 1.6% m/m in January, after four months of decline. This upturn was confirmed by the BRC/KPMG survey, which showed retail sales (smoothed over three months) up by 2.2% y/y in February.
The upward trend in nominal wages continued in January, with contractual wages scheduled to rise by 3.2% y/y, a record since 1992. However, the real wages index fell sharply to -1.8% y/y in January (-2.1 pp), its lowest level since March 2024. At the same time, the unemployment rate was stable at 2.5%.
Manufacturing PMIs rebounded in February, returning to their average level of Q4 2024 (50.2 for the NBS index and 50.8 for the Caixin index). In services, the PMIs remain below their Q4 level but are above the expansion threshold (50 for the NBS index and 51.4 for the Caixin index). The latest activity data confirm this reassuring but rather lacklustre performance: growth in industrial production slowed in January-February after accelerating in December, but held steady at almost 6% y/y. The slowdown in growth in production in services was more marked (+5.6% y/y in January-February, vs. +6.3% in Q4).
