The Bank of England (BoE) delivered another 25bp rate hike on its May meeting on Thursday, raising its interest rate to 4.5%. The forward guidance has not been revised and is still hawkish and it appears from the Monetary Policy Committee (MPC) minutes and report that the end of the tightening cycle might still be coming.
New factory orders in the industry fell sharply in Germany in March, after a fairly significant increase in February. Overall, these developments are offsetting each other. A very moderate increase over Q1 (0.2% q/q) is consistent with GDP growth, published at 0% q/q for Q1.
The French economy recorded GDP growth of 0.2% q/q in Q1, split between factors of resilience and weakness.
Industry, services: which sectors will bring the other in its wake? This is the question that arises when one observes the current divergence of the S&P Global PMI indices for the euro area
The INSEE business climate indicator saw a moderate downturn in April. This suggests that the upturn seen at the beginning of the year will not last.
The upturn in the INSEE business climate indicator in February was not confirmed in March although, despite the downturn noted, this indicator remains above levels seen between September 2022 and January 2023. Although the March survey highlights forthcoming disinflation, this drop remains relative and is not general. At the same time, we are seeing continued pressure from household demand, with the confirmed weakness of retail trade (excluding automotive) and the renewed deterioration of the business climate in construction.
With a peak in inflation last autumn and fears of energy shortages during the winter, the IFO’s index hit an historic low in October 2022. This index has recovered to normal levels, as winter turned out better than had been feared. However, following the poor performance of Q4, all signs point to this being just a “technical” rebound in activity.
The improvement is evident in the services sector, manufacturing industry and in the automotive retail trade. However, the construction sector is an exception, against a backdrop of a downturn in activity in new housing. Inflationary pressures are expected to increase in the retail sector.
According to our estimate, the trade deficit (goods) reached almost EUR 160 billion in 2022, after 85 billion in 2021. This sharp deterioration is mainly due to the rise in the prices of French energy imports, including oil. However, it seems that the balance on manufactured goods has also continued to deteriorate, including when viewed in terms of volume.
GDP growth surprisingly increased in the 4th quarter, reaching +0.1% q/q (after +0.2% q/q in the 3rd quarter), compared with -0.2% based on our forecast. Corporate investment was one of the factors behind this relative resilience, with a further rise of 1.2% q/q (having already grown by 3.8% q/q in the 3rd quarter). Conversely, consumer spending was undoubtedly the weak link in demand, with a drop of 0.9% q/q.