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Economic Pulse

PMI: Price pressures intensify further in manufacturing
05/09/2022 •

The global manufacturing PMI edged lower in April. The US and the UK recorded a small increase but there was a big improvement in Australia, Russia and even more so in Hong Kong. The euro area saw a decline but amongst its countries divergences trends were noted with an increase in France and the Netherlands and a decline in Germany and Italy. In China, Covid-19 infections led to a drop in the PMI to 46.0. The services PMI saw a significant decline in the US and a large improvement in the euro area. These developments are the mirror image of what we saw in manufacturing. France and Germany had better data but sentiment jumped in Italy and Spain. Japan had a moderate improvement. Data were significantly better in Brazil

Economic Pulse

Stronger than the contraction of GDP suggests  
05/09/2022 •

Contrary to expectations (annualised quarterly growth of 1%) US GDP contracted by an annualised quarterly rate of 1.4% in Q1 2022. This surprise fall hides a more nuanced and less negative reality. The economic engines of household consumption and business investment are robust and contributed 1.8 points and 1.3 points of growth respectively. However, reduced inventories at companies (contribution from changes in inventory of -0.8 of a point) and a reduction in public spending (contribution of -0.5 of a point), due to the ending of several support programmes, had a negative effect on growth. But the biggest negative contribution came from international trade (-3.2 points), which was the main reason for the drop in quarterly GDP

Economic Pulse

Eurozone: how worried should we be about recession?
05/09/2022 • By Hélène BAUDCHON

In the space of just a few months, growth prospects in the eurozone have deteriorated markedly. So much so that the risk of a recession is looming this year. Between our growth forecast from early 2021 – when it peaked at 5.5% – and our current scenario, drawn up in mid-March 2022, expected growth has been about halved; we now expect a figure of 2.8%. As recently as November 2021, we were still forecasting 4.2%. This figure of 2.8% still looks very high, as it is well above the long-term trend rate of 1.6% per year on average between 1996 and 2019. However, it relies on an exceptionally high growth carry-over of 2.1% in Q1 2022 and, for the subsequent quarters, on projected weak but positive growth

Economic Pulse

Mobility: back to pre-pandemic levels in the United States and Belgium
05/09/2022 • By Tarik RHARRAB

For the first time since December 2021, the number of new global Covid-19 cases for the week has fallen below the symbolic level of 5 million (average for a moving seven-day period). Some 4.3 million new cases were recorded between 26 April and 3 May, a fall of 15% on the previous week. The fall in infections continued in Asia (-24%) and Europe (-17%), but other regions indicated an increase in case numbers: North America (+11%), South America (+8%) and Africa (+4%). To date, 12 billion vaccine doses have been given around the world, taking the share of the global population to have received at least one jab to 65.4%. Despite this, in some parts of the world overall vaccine coverage remains low, with just 15.8% of people in low income countries having received at least their first dose.

EcoWeek 1 mai 2022

Editorial

ECB: the weaker euro, a blessing or a headache?
05/01/2022 •

At first glance, the significant depreciation of the euro looks like a blessing for the ECB. Via its mechanical effect on import prices, it should remove any remaining doubt about the necessity of hiking the deposit rate. However, upon closer inspection, there is concern that the weaker euro, through its effect on inflation and hence households’ purchasing power, will weigh on growth. This would warrant a cautious approach in terms of policy tightening. On balance, a deposit rate hike in the second half of the year looks like a certainty, but the real question is about the scale and timing of subsequent rate increase. This will depend on how the inflation outlook develops.  

Economic Pulse

Uncertainty: dominated by geopolitics
05/01/2022 •

US economic policy uncertainty based on media coverage has declined since the start of the year. In the US, business uncertainty about sales revenue growth has been edging higher whereas uncertainty about employment growth continues its downtrend. The European Commission’s uncertainty index has jumped following the war in Ukraine. This has also caused an exceptionally large increase in the geopolitical risk index, which is based on media coverage. The cross-sectional standard deviation of daily stock market returns of individual companies – a measure of financial uncertainty – has risen in the US and the euro area, albeit to a limited degree. 

Economic Pulse

The war in Ukraine : a factor in the tightening of lending conditions for enterprises
05/01/2022 • By Céline CHOULET

 Growth in outstanding bank loans to NFCs decelerated in March 2022 (4.2%, from 4.5% in February) for the first time since September 2021 (by way of comparison, real year-on-year GDP growth was 5% in Q1 2022, from 4.7% in Q4 2021 according to Eurostat’s preliminary estimate, masking a slowdown on a quarterly basis, +0,2% q/q in Q1  2022 against +0,3% q/q in Q4 2021). Because of a substantial comparison effect (between March and August 2021, the virtual cessation of new guaranteed loans to NFCs and a first wave of loan repayments put the brakes on growth in lending), the impulse of credit to NFCs (reflecting the change, over a year, of the annual growth in outstanding loans) continued to improve – whilst remaining negative – to -1.0% in March 2022, from -2.6% in February. 

EcoWeek 24 avril 2022

Editorial

Inflation persistence and why it matters
04/24/2022 •

Elevated inflation has become widespread. It raises the risk of further price increases because companies may be more inclined to raise prices when most others are doing the same. This would make high  inflation more persistent, implying that it would take more time for inflation to converge back to target.  Persistently high inflation could weaken the credibility of the central bank and cause an un-anchoring of long-term inflation expectations. To pre-empt such a development, monetary authorities could decide to tighten policy aggressively. Research by the Federal Reserve shows that US inflation has become more persistent. This helps to understand the increasingly hawkish rhetoric of Federal Reserve officials and their insistence on the need to frontload monetary tightening

Economic Pulse

International trade: expectations downgraded significantly 
04/24/2022 • By Guillaume DERRIEN

After the World Trade Organisation (WTO), the International Monetary Fund also revised significantly lower its forecast for global trade for 2022. Exports are now expected to rise by 4.4%, compared with an estimate of 6% in October. This is above the WTO’s projections of 3% growth in 2022. Given the sharp rebound seen in 2021 – an increase of 9.8% – a lower rate of growth in goods exchange was expected. However, the war in Ukraine and the difficulties facing China in terms of its economy and the public health situation are important headwinds to growth. Some signs of this slowdown can already be seen: the global manufacturing PMI index for new export orders dropped sharply in March (-2.8 points to 48.2), reaching its lowest level in 18 months (chart 2)

Economic Pulse

In lockdown
04/24/2022 • By Christine PELTIER

China’s economic growth reached 4.8% year-on-year (y/y) in Q1 2022. It improved slightly over the first two months of the year, both in industry and in services, but this recovery was cut short in March. Economic conditions have worsened rapidly, as our barometer shows (narrowing of the blue area relative to the dotted area). This deterioration has resulted primarily from the resurgence of Covid-19 and mobility restrictions imposed in a number of regions in the country. In addition, short-term growth prospects are also looking bleaker due to deterioration in the international climate triggered by the war in Ukraine.

Economic Pulse

Covid-19: the pandemic is continuing to decline (almost) all over the world | Economic Research - BNP Paribas

04/24/2022 • By Tarik RHARRAB

According to the latest figures from Johns Hopkins University, 5.9 million cases of Covid-19 were reported worldwide between 13 and 19 April (down 24% relative to the previous week), the lowest level since the end of December 2021. The number of cases continued to fall in Europe and Asia (down 26%), South America (down 24%) and Africa (down 13%), while a further increase was seen in North America (7%) for the second time in a row (chart 1). To date, the threshold of 11 billion vaccine doses has been reached, including 1.8 billion follow-up doses. This means that around 65% of the worldwide population has received at least one dose of a vaccine (chart 2).

EcoWeek 18 avril 2022

Editorial

Should we worry about the flattening of the yield curve? Not yet
04/18/2022 •

The US yield curve has flattened, giving rise to comments that, given the historical experience, risk of a recession is increasing. Yet, when drawing conclusions, caution is warranted. Market-based inflation expectations, which are very high, should decline after a number of rate hikes. This could pull down long-term nominal bond yields, leading to a further flattening or even an inversion of the curve. However, a decline in inflation is growth-supportive. Another reason for caution is that due to past central bank asset purchases, the slope of the yield curve is less steep. Past QE may thus reduce its quality as a leading indicator of economic growth. For these reasons, an alternative indicator has been developed

Economic Pulse

Inflation weighing on household consumption

04/18/2022 • By Stéphane COLLIAC

French inflation hit 4.5% y/y in March according to the final INSEE estimate, due mainly to another jump in energy costs (up 9% in March alone, a 29.2% increase year-on-year). At the same time, this inflation appears to be starting to bite when it comes to consumer spending on goods: having fallen significantly in January (-2% m/m), this saw only a limited recovery in February (+0.8% m/m). The latest INSEE survey of household confidence was anything but reassuring about the prospects of a short-term rebound. Consumer confidence has fallen sharply, particularly because of fears of further price increases: the balance of opinion on the outlook for prices rose by 50 points, taking it to record levels.

Economic Pulse

The surge in inflation will continue

04/18/2022 • By Guillaume DERRIEN

Inflation in Italy reached 6.7% y/y in March, the highest level since July 1991. In addition to the spectacular rise in energy prices (electricity, gas & fuel) – up 50.9% y/y –  there are now significant increases in prices for food products (+5.8% y/y), furniture (+8% y/y), as well as for the hotels & restaurants sector (+4.6 % y/y). That said, two consumption items are still in deflationary territory: education (-0.5% y/y) and communication services (-2.9% y/y). Nonetheless, the hardest part has yet to come: the latest PMI survey for March showed once again a significant increase in input prices, which was the strongest on record (+6.7 points to 81.5). This will feed through to higher consumer prices: this PMI index is indeed very well correlated with the CPI.

Economic Pulse

The Bank of England faces rising inflation

04/18/2022 •

Economic growth strengthened over the first two months of 2022, but is likely to slow in the near future due to inflationary pressures. Industrial production rose 3.6% year-on-year (y/y) in February, suggesting that economic activity picked up in Q1 2022 (provided that this rise continued into March) relative to Q4 2021. In services, the business climate has improved continuously since Q3 2021, taking the PMI to 62.6 in February 2022. Meanwhile, retail sales rose 15% y/y in February, confirming the recovery that began in late 2021. 

Economic Pulse

Covid-19: new weekly cases fall below symbolic 10 million mark

04/18/2022 • By Tarik RHARRAB

The number of new Covid-19 cases reported worldwide fell for the third consecutive week. For the first time since January 2022, the number of new cases for the week has fallen below the symbolic level of 10 million on average for a moving seven-day period. Some 8 million new cases were recorded between 7 and 14 April, a fall of 21% on the previous week (Chart 1). Numbers continued to fall in Europe, Asia, South America and Africa, although North America saw an increase after three months of virtually continuous falls. Meanwhile, 65% of the world’s population has now received at least one dose of a Covid-19 vaccine (Chart 2).

EcoWeek 10 avril 2022

Editorial

What drives companies’ elevated selling price expectations? 
04/10/2022 •

An exceptionally high number of Eurozone companies plan to raise selling prices. It is unlikely that, at this stage, unit labour cost growth would already be a key driver. Rising input costs and strong demand are playing a crucial role, whereby well-filled order books make it easier for companies to increase their prices. Selling price expectations of euro area companies are much higher than what would be expected based on their historical relationship with input prices and order book levels. It seems that when more companies are raising prices, others will be inclined to do the same. This broad-based nature of the increase of inflation could slow down the reaction of inflation to slower demand growth.

Economic Pulse

Another inflation shock and supply disruption on the rise again
04/10/2022 •

The global manufacturing PMI has declined slightly in March after a brief and limited rebound in February. It is at its lowest level for this year. In the US however, the upward trend continues whereas the Eurozone saw a significant decline. Within the Eurozone, Ireland was an exception and the index has rebounded to its January level. Japan, Mexico, South Africa and in particular Brazil saw an improvement in March. China and Vietnam recorded significant declines.

Economic Pulse

Household confidence plunges, but employment holds up
04/10/2022 • By Guillaume DERRIEN

Rising inflation has eroded household confidence in Spain, which in March reported the sharpest drop since the European Commission’s statistical series began in July 1986. So far, business confidence is holding up better according to PMI and European Commission surveys. Yet there are clear signs of an economic slowdown to come: the new orders component of the PMI index has declined due to a sharp deterioration in external demand. Another notable change is the extension of goods delivery times in the manufacturing sector (the PMI index was down 9.1 points to 22.4). It is now at approximately the same level as in November 2021, the worst month on record for the current statistical series.

Economic Pulse

Covid-19: New cases decline worldwide for second consecutive week
04/10/2022 • By Tarik RHARRAB

The Covid-19 pandemic slowed worldwide for the second consecutive week, with a significant 14% decline in the number of new cases reported between 31 March and 6 April compared to the previous week. New fact to notice: this improvement benefitted all regions (chart 1): South America and Africa (-27%), Asia (-20%), Europe (-11%) and North America (-5%). Meanwhile, vaccination campaigns continue to progress. To date, 11.4 billion doses of the vaccine have been administered worldwide, bringing to 65% the share of the global population that has received at least one dose of the Covid-19 vaccine.

EcoWeek 3 avril 2022

Editorial

Household spending under pressure from inflation
04/03/2022 •

A priori, rising inflation and inflation expectations, reflecting robust growth in demand and economic activity, should boost household spending by reducing real interest rates. Today’s situation is different. In many advanced economies, inflation is exceptionally high and to a considerable degree explained by negative supply shocks. In the EU and the euro area, household confidence recorded a big drop in March. Although unemployment expectations have increased, the main reason seems to be concern about high and rising inflation. Eurozone consumer confidence measures provide information about spending up to three quarters into the future. Given their recent decline, one should expect below-average consumer spending growth over the coming months

Economic Pulse

The low tides of March
04/03/2022 • By Jean-Luc PROUTAT

Very few survey results are available yet for March 2022, but they are all mediocre, which shows that the harmful impact of Russia’s war in Ukraine is not limited solely to Europe. Although it hasn’t collapsed, the Conference Board’s household confidence index has fallen from peak levels. In the Philadelphia and New York regions, industrial leaders are seeing darker horizons, which is probably due as well to the resurgence of the Covid-19 pandemic in China, which promises to further aggravate supply chain tensions that are already very high.

Economic Pulse

Whilst inflation continues to soar, the unemployment rate continues to fall
04/03/2022 • By Hélène BAUDCHON

Eurostat’s flash estimate puts eurozone inflation for March at 7.5% y/y, representing another very substantial increase (up 1.6 points on the February figure). Inflation continues to be driven mainly by energy prices – the energy component contributed 4.9 percentage points to this figure, thus explaining 65% of the total – but the other components (food, manufactured goods, services) are also seeing increases and each contributed around one point. Thus, inflation is getting more widespread and all eurozone countries have been affected by its recent acceleration, albeit to varying degrees.

Economic Pulse

Is the worst still to come?
04/03/2022 • By Guillaume DERRIEN

Given the obstacles piling up for the global economy, there was concern that the consensus forecast of a significantly weaker Tankan survey would end up being too optimistic.  Upon its release, it turned out not to be the case, with some series below consensus and other slightly better. The overall conclusion is clear however: the report was indeed less positive than in the previous quarter.

Economic Pulse

New Covid-19 case numbers continue to stabilise in Europe

04/03/2022 • By Tarik RHARRAB

After a week of stabilisation, global Covid-19 case numbers have started to fall again. 11 million new cases were recorded between 24 and 30 March, a 9% drop on the previous week. In more general terms, the number of new cases has continued to fall in North and South America, whilst Asia saw its first fall in case numbers after two months of near-continuous increases. In Europe, by contrast, the situation was stable for the second week in a row.

EcoWeek, the weekly Economic Research round-up, looks back on the economic and financial news of the past week.

In his editorial, the Chief Economist analyses a decision, event or trend, with the help of graphs. Topics covered include the monetary policy decisions of the main central banks, in particular their interest rate trends and decisions (monetary tightening, quantitative easing), the evolution of bond yields (in particular the German Bund, the euro zone reference rate and the United States Treasury), the main budgetary policy choices of developed (OECD) or emerging (China, India, Brazil and Russia, in particular) economies and their immediate and future effects on the countries’ economies, global trade and financial market psychology, etc.

The Barometer section provides a summary of the main economic indicators of a country or zone (United States, euro zone, France, Germany, United Kingdom, etc.), of global trade (e.g. volumes and new export orders, strains on value chains, Baltic Exchange Dry Index, freight rate, delivery times), of credit momentum in the euro zone (according to the European Central Bank’s lending survey), or uncertainty indicators (e.g. media coverage, dispersion indices, geopolitical risk index).

The Calendar section highlights the important dates of the coming week (expected economic data, central bank meetings, press conferences, publications, etc.) and the same updated data from the previous week.

In addition, EcoWeek provides a Market Review (money and bond markets, interest rates, currencies, commodities, performance by sector, oil prices, etc.), as well as an update of the economic scenarios for the United States, China, the euro zone and France. Lastly, economists provide regular commentary on forecasts for interest and exchange rates, as well as growth and inflation in several countries.