The household savings rate in France has risen further, up from 17.6% of households' gross disposable income (GDI) in Q1 2024 to 17.9% in Q2 2024, according to the INSEE, i.e. 1 point more in a year. This is also an early sign of an upward trend underway in the Eurozone. While the figures for Q2 are not yet available, the Q1 figures pointed to a savings rate 3 points higher than its pre-COVID level (at 15.4%).
In 2019, the European Union (EU) adopted a very ambitious Green Deal, setting a 2050 climate neutrality target for the 27 member states. Since then, the Fit for 55 legislative package (in 2021) has been introduced, followed by the series of REPowerEU directives (in 2023) detailing the process to speed up reducing greenhouse-gas emissions (to at least twice the current pace). The main focus has been on developing renewable energies, whose share is set to double within six years, accounting for 42.5% of end-energy use by 2030.
Historical relationships between economic data play a key role in shaping expectations. In the US, the Sahm rule is such an important stylised fact: when the recent increase in the unemployment rate reaches a certain threshold, a recession tends to follow shortly or has even already begun. The jobs report published early August showed that this critical value had been reached, triggering a drop in investor sentiment. At the Jackson Hole conference, Jerome Powell explained that the Fed’s focus is shifting to the labour market and brought an unambiguous message that the rate cutting cycle is to start in September
In August 2024, French inflation is expected to fall back below 2% year-on-year for the first time in three years (August 2021). This disinflation is mainly linked to energy prices and is expected to increase further at the start of 2025 for the same reasons (expected drop in electricity prices). By contrast, inflation in services, which has been impacted by an Olympic effect in particular, is expected to remain high in the short term, but will not prevent further disinflation.
Key figures for the French economy compared with those of the main European countries, analysis of data on the population and the French labour market, activity by sector, publication administration figures, inflation, credit and interest rates, corporate and household accounts.
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.
The Italian economy has seen strong recovery since the end of the Covid-19 pandemic. Since 2021, its annual growth has far exceeded that recorded on average in the eurozone, thanks to the implementation of expansionary fiscal policies, which have buoyed consumption and investment, and the gradual recovery of tourism. Since the beginning of 2023 however, economic activity has started to moderate, due to an unfavourable international environment and the gradual abolition of these fiscal measures. In addition, the latter have, by their very nature, impacted the State's public finances, placing the country under the European Commission's excessive deficit procedure (EDP) in June 2024.
Poland’s economy has generally shown resilience during periods of turbulence since the financial crisis of 2008-2009. For instance, in 2009, the country was able to avoid a recession in contrast to neighbouring countries. Since 2020, successive shocks have constrained GDP growth momentum, but strong fiscal buffers enabled the authorities to implement generous supportive measures. The country remains amongst the best performing economies in the region in the early months of 2024, with its GDP above 11% in Q12024 compared to its pre-COVID levels. Overall, the country reinforced its position in Europe, judging from the increase of Poland’s economic weight in the EU (measured by GDP in purchasing power parity) and gains in market share
Economic growth prospects are improving for 2024, but the recovery is likely to be limited by still sluggish domestic demand. On the foreign exchange market, the Hungarian forint has come under downward pressure recently. On public accounts, the fiscal consolidation that began in the summer of 2022 has not significantly reduced the deficit. For 2024, the deficit will probably be less pronounced than last year, but will remain high in any case (around 5% of GDP). As a result, Hungary will probably be subject to an excessive deficit procedure in 2024
The average time taken to sell new houses to retail buyers (individual houses and flats, excluding renovated or upgraded housing) fell slightly in the first quarter of 2024. This took it to an average of 32 months, from 33.2 months in the fourth quarter of 2024. This downturn marked an end to the uninterrupted rise in sales times since the second quarter of 2022, when it stood at 13.3 months.
According to the expression “goods things come in threes”, France would meet Germany for the third time in the three lasts Euro football tournaments and win a third consecutive success. On the economic front, French results have already outpaced German results in three important areas over the past five years: job creation, investment growth and the transition to services. As a result, it is not surprising that France generated an additional 0.5 percentage point growth per year compared to Germany.
The first cut in policy rates by the European Central Bank on 6 June came as no surprise, as the committee members had largely prepared the ground ahead of the decision. The timing and scale of future easing is more uncertain, given the continuing strong pressure on wages, high inflation in services, and the resurgence of tensions in global shipping. We expect two further interest rate cuts in 2024, at a pace of one per quarter (September and December).
German growth is expected to be supported, in the short term, by the upturn in the country's industry, which should offset some of the loss of production associated with the rise in the cost of energy following the outbreak of the war in Ukraine. As an open economy, Germany is also expected to benefit from the rebound in growth in the eurozone since the beginning of 2024. However, in the longer term, German growth potential is likely to continue to suffer from labour shortages, from the weight of its industry (weakened by the low-carbon transition), and also from the consequences of insufficient investment against a backdrop of a surge in new competitors.
The French economy is characterised by growth, a statement that is all the clearer following the changeover of the national accounts to the 2020 base and the publication of the 2023 annual accounts, which led INSEE to raise its 2023 GDP estimate by almost EUR 20 billion. However, there are winners and losers from this growth. In 2024, it should be sustained mainly by market services, which account for the bulk of job creation and growth in demand. However, this growth in services substitutes that for goods, while inflation and interest rate shocks continue to weigh on investment.
In Q1 2024, the Italian economy slightly accelerated. Real GDP rose by 0.3%, with a mixed evolution by sector. Valued added of construction rose, while that of manufacturing declined, suffering from the slowdown of exports. Services increased moderately, benefitting from the recovery of tourism. Domestic demand contributed positively to the overall growth and households profited from the improvement of labour market conditions. Economic and financial conditions of firms further improved. In Italy, in the first five months of 2024, on average, the consumer price index increased by less than 1% y/y per month.
In Q1 2024, Spanish real GDP growth was, as expected, one of the highest in the euro zone (+0.7% q/q). It was mainly driven by foreign trade (contributing +0.5 pp), which was directly supported by the record tourism figures recorded at the start of the year. In the second quarter, we expect activity to remain strong (+0.7% q/q) due to a gradual recovery in private consumption, continued growth in exports, and support for investment from future disbursements of NGEU funds.
The Dutch economy was confronted with a new decline of its GDP in the first quarter of 2024, due to an unexpected drop in exports. The future does not look too gloomy though, since a new coalition was formed and presented friendly purchasing power measures that are likely to support private consumption. The agreement however plans to limit the budget deficit to 2.8% of GDP through spending cuts which could deteriorate the country’s productivity in the longer run.
Belgian economic growth remains close to trend rates, even as a shift in the underlying drivers is taking place. Corporate investment rebounded from last quarter’s one-off dip. More encouraging is the bottoming-out of household investment in dwellings. Real estate prices have remained on an upward trend throughout the ECB’s now ended hiking cycle and the depressed activity levels are expected to slowly recover. Public finances remain a challenge, as the spectre of prolonged government formation talks once again casts a shadow over the Belgian economy.
After being in recession in 2023 (-0.8% on an annual average), due to falling investment, high inflation and the decline in real wages, Austrian growth is expected to remain weak this year (+0.3% according to the European Commission). In Q1, real GDP grew by just 0.2% q/q, still dragged down by the decline in investment (-4.7% q/q, contributing -1.1 pp to growth), but nevertheless pulled up by the rebound in private consumption (+0.8% q/q, contributing +0.4 pp), itself supported by the return of real wage increases and the resilience of the labour market.
The Greek economy is proving resilient to rising funding costs and geopolitical tensions in Europe. The country is expected to post economic growth once again above the eurozone average in 2024. Real GDP grew by 2.0% in 2023 as an annual average and by 0.7% q/q in Q1 2024, driven by private consumption and investment. Except in real estate, inflationary pressures have eased and fuelled purchasing power gains which, with rising employment, are supporting private consumption, the weight of which in GDP reached a new record in Q1 2024 (76.9%). Because of its size and dependence on the external market, the country nevertheless remains very exposed to economic developments in Europe as well as to the energy market, and oil in particular.
In 2023, Denmark experienced dynamic and above-expected economic growth, in the form of an illusion given the preponderance of the pharmaceutical sector. This sector turned into the country’s main asset, to such an extent that fears of increasing dependence have appeared. Furthermore, inflation has fallen significantly since the 2023 high, while the Danish central bank is expected to continue to ease policy in line with the ECB.
