In the first quarter, real GDP growth in the United States and the Eurozone was almost on a par, at a quarterly rate of 0.4% for the United States and 0.3% for the Eurozone, according to initial estimates. However, on a year-on-year basis, the situation remains very much to the United States’ advantage, with growth of 3% when Eurozone growth is only 0.4%.
In line with previous months, the recovery in the private sector credit impulse continued in the first quarter of 2024, after the dip seen in the third quarter of 2023. This said, the recovery was slightly slower than at the end of 2023 and the overall trend is still negative. Developments in lending to business are traditionally more volatile over the cycle than those in lending to households. Recent ones have not deviated from this rule: in the autumn of 2023, at a time when the effects of the tightening of monetary policy were at their strongest, the impulse of lending to households did not fall as far, in absolute terms, as that for lending to businesses. Conversely, its recovery since then has been less vigorous
Since China's accession to the World Trade Organisation (WTO) in December 2001, the European Union's bilateral deficit with the country has widened from EUR 39 billion to EUR 292 billion in 2023 (Eurostat data). This is by far the largest deterioration recorded by the Old Continent with a trading partner, even though, as a whole, the EU's trade balance with the rest of the world returned to surplus in 2023.
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.
In recent years there has been a substitution between consumption of goods and consumption of services. This substitution even accelerated after Covid, with inflation accelerating, and is expected to continue in the coming years. Thus, while consumption of goods has declined since the beginning of 2022, this deterioration is partly due to this substitution effect and not to a reduction in household spending, since total consumption is higher than its pre-inflation level (end 2021).
Romania recorded a softer economic growth in 2O23 but remained one of the best performing economies in the region. The short-term outlook is strong. The gradual fall in inflation since the end of 2022 should pave the way for an accommodative but cautious monetary policy. The persistence of twin deficits remains a major concern. So far, the country has been able to rely on a certain resilience in capital flows to partly offset the current account deficit. Fiscal consolidation is one of the government's short-term priorities, although there is limited room for manoeuvre this year given the busy electoral calendar. Public debt is sustainable in the short and medium term.
After two years of deficit, the EU trade balance returned to positive territory in 2023, supported in particular by falling energy prices. Trade surplus in traditionally buoyant sectors (pharmaceuticals, automotive) remains at historically high levels. China’s ramp-up to higher value-added sectors has, over the years, led to a deterioration in the EU’s trade balance with the country. Among other things, imports of motor vehicles from China tripled between 2019 and 2023.
The publication of INSEE’s business climate survey on Thursday 25 April confirms the prospect of an improvement in demand, which has remained depressed in recent months. Ahead of the publication of important data from 30 April, we anticipate that growth, having remained weak in Q1, should accelerate in Q2, benefiting from the disinflation observed. However, the improvement may not be sufficient to rule out the risk of business insolvencies remaining high.
After two years – 2021 and 2022 – of significant improvement linked to the post-Covid recovery in activity, 2023 marked a halt in the recovery of public finances in the euro area. According to preliminary results published on Monday by Eurostat, the public deficit narrowed in 2023 by only 0.1 point of GDP, to 3.6%. The primary deficit also fell by the same magnitude, to 1.9% of GDP.
Annual flows of money market fund shares/units held by non-financial corporations (NFCs) in France were positive throughout 2023, having been negative from the second quarter of 2021 to the fourth quarter of 2022. This trend reversal was due most notably to the increase in key ECB interest rates on 27 July 2022, which pushed up money market returns.
Economic activity in the eurozone is expected to gradually pick up over the course of 2024, buoyed by improving household purchasing power and falling interest rates. However, the industrial sector in the eurozone is facing major structural problems, which will not (or will only slightly) be addressed by lowering the ECB’s policy rates. The ramp-up of the EU’s recovery fund should, in theory, enable southern eurozone countries, which are the main recipients, to outperform again in 2024. However, so far, its effects have been relatively limited and the implementation problems, as highlighted in a recent European Commission report, will not go away completely this year.
The German economy has been significantly underperforming the eurozone average and past standards for just over 6 years. The country might even be in recession again in Q4 2023 and Q1 2024. So has Germany bottomed out? From an economic point of view, this is likely because the moment of weakness, posted this winter, is partly due to exceptional effects. From a structural point of view, the German economy is expected to continue to post moderate growth, which would not allow it to regain its status as a driver of European growth.
Just as in 2022 and 2023, the French economy got off to a weak start this year and is expected to see its growth accelerate in Q2. Although not in the same way as in previous years, headwinds affected the French economy in Q1 2024. Beyond this purely cyclical upturn, to return to more durable growth, we will need to wait for the return of French consumers, which we also expect to see in Q2. And lastly, corporate investment should once again bolster French growth, with the implementation of the France Green Industry plan in particular.
In 2023, Italian real GDP rose by almost 1%. The recovery of the economy was broad-based. Private consumption rose by 1.2% in 2023, benefitting from the further improvement in labour market conditions. In 2023, investment continued to be the main driver of the Italian recovery. Expenditures on machinery and ICT equipment were 20% higher than in 2019, with some first positive effects on Italian potential growth. The growth in investment since the post-pandemic period has increased the number of firms using technologies relying more effectively on digital transformation to boost productivity.
In 2023, Spanish real GDP (up an annual average of 2.5%) grew much more than Eurozone real GDP (0.5% y/y). Household consumption, the main driver of growth, was buoyed by the strong labour market and slowing inflation. We are forecasting growth of 0.4% q/q in Q1 2024, before it accelerates in the subsequent quarters. Therefore, for the fourth year, Spanish growth is expected to be one of the Eurozone’s driving forces (2% y/y versus 0.7% y/y).
The short Dutch recession seems to be over, thanks to dynamic private and public consumption. Inflation continues to cool down, even though it remains stickier than thought in some sectors. A new government has still not been formed yet, but there is a consensus about the fact that once it is the case, public spending is set to increase further, giving the economy an extra boost. The Dutch economy is therefore likely to navigate a different, more positive, path from its neighbors’.
Our first quarter nowcast confirms the outlook for the Belgian economy: it keeps cruising at close to trend-growth rates (0.3% q/q), despite the challenging external environment. One-off factors temporarily sped up normalisation in both firm investment and international trade, but private consumption once again carries the brunt of economic growth. Consumption patterns are changing however, with more e-commerce and share of total outlays spent on services. Belgian firms continue to demonstrate resilience, while the labour market cools down.
After eight years of socialist government, the centre-right Democratic Alliance coalition won the snap general election held on 10 March. This shift in the political landscape, where no party now has an absolute majority in Portugal’s Parliament, could be a source of instability in the country. Nevertheless, the sweeping consolidation of public finances during António Costa’s term, as well as sound macroeconomic fundamentals, give the future government considerable economic and fiscal leeway. Portuguese growth is expected to remain well above Eurozone growth in 2024 (standing at 1.2%, according to the European Commission, compared to 0.7% for the Eurozone).
The S&P Global manufacturing PMIs for the month of March point towards a pickup in economic momentum in most countries. In the Eurozone, the improvement is strong, especially in manufacturing and to a lesser degree in services. Momentum is slow however in terms of employment. In the US, the recent pickup in manufacturing sentiment is also strong compared to history. Against the background of these and other strong data, Fed officials have insisted on the need for caution in cutting rates, all the more so considering that the pace of disinflation has clearly slowed. The US soft landing view is increasingly being challenged and ‘no landing’ is put forward as an alternative
In Q1 2024, business insolvencies in France reached nearly 15,000 units. This is only slightly less than in Q4 2023, which was marked by a sharp rise. Although the construction and retail trade sectors are facing a significant increase in the number of businesses affected, insolvencies in these sectors remain below historic highs. On the other hand, records were set in business services and in transport and storage services.
Our Western Europe business insolvencies index has risen above its pre-COVID level. However, it is still far below the peaks seen after the 2008 crisis and during the eurozone crisis (between 2011 and 2015). In most countries, the business insolvencies level is now higher than it was before the pandemic. This has been the case since 2022 for the UK and Sweden, which were joined by France, Belgium and Germany during 2023. However, in Germany, Italy and the Netherlands, the insolvency levels are still far below their pre-COVID peaks. These diverging evolutions are also being reflected in sectors, with sharper deterioration in construction, trade and real estate agencies in the countries that have suffered the steepest decline in business activity.
Disinflation in the euro zone continues to buoy household confidence. The European Commission index rose by 0.6 points to 14.9 points in March, according to the flash estimate. This is its highest level since February 2022 and the start of the war in Ukraine.
The first indicators available for January point to a continuing weak start to the quarter (after contraction in GDP of -0.3% q/q in Q4 2023), hence our forecast of a further drop in GDP of -0.1% q/q in Q1. Manufacturing production (up 1% m/m in January) remained 1.5% below the figure seen in November, due to a sharp drop in automotive production (down 10% in January from the level seen in November).
Q1 got off to a bad start, with a drop in manufacturing production in January (-1.6% m/m) linked to the shutdown of oil refineries for maintenance (with new difficulties in March), and a downturn in the automotive sector (supply problems, followed by a drop in demand affecting the production). At the same time, January’s foreign trade data do not suggest a rebound in imports of intermediate goods (inputs for other sectors).
Activity in the private sector in Italy continued to improve in February, according to the composite PMI index, which was up 0.4 points over a month, taking it to 51.1. However, unlike the current situation in Spain, the divergence between the manufacturing sector and the services sector is becoming more pronounced.
