The Belgian economy looks set to grow at its current trend rate for the next few quarters. Despite a challenging international environment, characterised by restrictive monetary tightening combined with economic slowdowns in key trading partners, the economy has held up remarkably well. Consumer spending, supported by wage indexation, and robust investment are leading the charge. Capex expenditures are directed towards automation and climate transition in the wake of energy and labour costs hikes.
Greece is expected to enjoy economic growth once again in 2024, but activity showed signs of slowing down in the second half of 2023. Real GDP stagnated in Q3 2023 and employment fell by 0.5% q/q. While strong tourism activity, against a backdrop of high inflation, is boosting tax revenue, its impact on real GDP is more muted. The sharp drop in the unemployment rate (which is now below 10%), the drastic improvement in public finances and the decline in public and private debt testify to Greece’s solid recovery, which has been welcomed by the rise in equity and bond markets, and by the sharp tightening of spreads between Greek sovereign debt and the German Bund
The combination of rising inflation and the monetary tightening to combat it led the Swedish economy into recession. Declining household consumption and residential investment were the main drivers. Although the situation is not expected to deteriorate further in 2024, this does not mean that a dynamic recovery is to be expected. However, although Sweden is experiencing significant difficulties, it still has many assets to support activity in the medium term.
The eurozone narrowly escaped economic contraction in the last quarter of 2023, but the picture is mixed among countries. According to preliminary figures from Eurostat, real GDP in the euro area remained stable in Q4, following a slight decline of 0.1% q/q in Q3. Quarterly growth surprised to the upside in Spain (+0.6%), Italy (+0.2%), while the data for France (0.0%) and Germany (-0.3%) were in line with the consensus. The largest decline in the euro area came from Ireland (-0.7%) while Portugal’s growth rose the most (+0.8%).
Whereas in 2022, France imported electricity, it became a net exporter again in 2023. This result was driven by a drop in consumption of almost 6% from the autumn of 2022, before the partial rebound in nuclear power and the rise in renewable power allowed production to increase in 2023. Additional efforts will have to be made to meet the targets set for 2050, but what was made in 2023 is a necessary starting point.
INSEE has published its business climate survey for January along with its quarterly industry survey. These two surveys reflect a lack of momentum, without marking any further deterioration. Regarding sales prices, the changes observed are encouraging, although recent events in the Red Sea could reverse the trend.
After the historic peak in the first quarter of 2021 (“Covid savings”), financial investments and the household savings rate fell in step with each other through to the second quarter of 2022.
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.
Because of its significance and its many connections with the real and financial spheres, the residential property sector plays a central role in the economic cycle. The acceleration in property prices in the eurozone, which began in 2014, the year in which the monetary bloc emerged from recession, intensified after the "Great Lockdown" of 2020, peaking at almost 10% year-on-year in the first quarter of 2022. The tightening of monetary policy by the European Central Bank, unprecedented in its scale and speed, seems to have put a halt to this progress, although at this stage there are significant differences between countries. Economies where the property market had withstood the subprime crisis better now appear to be in greater difficulty in the face of tighter credit conditions
The end of the year is shaping up to be a difficult one for the eurozone, as displayed by the flash PMI indicators for December. The composite index, fell by 0.6 points to 47, and remains below the threshold of 50 (in contraction territory) for the seventh month in a row. The employment index has not plummeted, but has been gradually declining since April, reaching 49.6 in December, its lowest level in three years. At 6.5% in October, the unemployment rate in the eurozone stabilised at a historically-low level, which is increasingly looking like a floor. We expect the jobless rate to rise slightly over the next few months, in line with current trends in the PMI indices. The unemployment rate for young people (under 25) has already risen by one percentage point in six months, to 14
The business climate indicators highlight a still deteriorated situation, raising fears of another quarter of contraction in activity (-0.1% q/q in Q4 according to our forecasts), following four quarters of stagnation or decline (including -0.1% q/q in Q3). Indeed, the indices linked to current conditions in the IFO and ZEW surveys remained close to historical lows, in both industry and services. Expectations of a small improvement are based on the anticipation of the ECB’s monetary easing in 2024, which remained uncertain for the time being.
The signs of the French economy cooling down intensified in December, with a further fall in the flash composite PMI to 43.7 (44.6 in November). The manufacturing PMI has been below 50 for 11 months and hit a new low in December, as did the services PMI.
Economic growth is slowing down in Italy. After contracting by 0.4% q/q in Q2, economic activity only grew by 0.1% q/q in Q3, almost standing still in that quarter. This small rebound was led by consumer spending (+0.6% q/q, contribution of 0.4 percentage points) and foreign trade (+0.8 points). Nevertheless, these positive developments were counterbalanced by significant destocking. For its part, investment recorded a quarterly change of -0.1% in Q3.
Contrary to the trend observed in the other three major eurozone countries, Spain recorded a more moderate fall in inflation in November. According to the INE, the growth in the Harmonised Index of Consumer Prices (HICP) slowed by 0.2 pp to 3.3% y/y this month (while the decline reached 0.7 points in France and Germany, and 1.1 points in Italy). Based on recent trends in the producer price index, which recorded its eighth consecutive month of deflation in October (-7.8% y/y), this consumer price slowdown is set to continue, and even accelerate, over the coming months.
In France, the housing sector has undergone profound changes over the past two decades in order to respond to the shift in demand towards building renovation and maintenance in particular. This transformation has gathered pace since 2016 against a buoyant economic backdrop, with a growing real estate market and particularly favourable financing conditions (low interest rates and few business insolvencies). However, while the sector will have to continue to adapt (i.e. the gradual ban on renting poorly insulated dwellings), it is grappling with a deterioration of its economic environment. Rising interest rates and business insolvencies could make this new adaptation more complicated to navigate, at least in the short term.
The ECB's latest macroeconomic projections show fairly marginal downward revisions to inflation (headline and core) and economic growth for both 2023 and 2024, compared to the September forecast. With real GDP growth now foreseen at 0.6% on average this year and 0.8% next year, the ECB's projections are slightly higher than ours, currently at 0.5% and 0.6% respectively.
Inflation remains high but, judging by the latest figures published for the Eurozone, it is much less so and, at first glance, it is no longer very far from the 2% target. Of course, there is still some way to go; the uncertainty relates in particular to how fast the “last mile” of disinflation will be covered, before reaching the 2% target. It is to be expected to be slow rather than quick, partly because favorable base effects on energy prices will play less.
Business insolvencies continued to rise in October and are now 10% higher than their pre-COVID level (2019 figures) in cumulative terms over the last three months, according to data from Banque de France.
In a recent speech, ECB President Christine Lagarde said that when the financing needs of an economic transformation exceed the capacities of fragmented financial markets, developing a capital markets union becomes crucial. This is the point at which the EU has arrived. According to European Commission estimates, financing the energy and digital transition will require more than EUR 700 billion annually. One way of reducing capital market fragmentation is by lowering the cost of information gathering for investors, e.g. through the harmonisation and, where possible, simplification of standards and regulations. This would increase the risk bearing capacity of investors and lower the cost of financing for issuers
German exports of goods fell in October according to Destatis, continuing the trend seen over previous months. As a result, exports have been contributing negatively to German growth for almost a year, most notably exports to China. However, in October, exports to the European Union fell, after being hit by the decline in growth in the region.
After several quarters of high job creation (89,000 on average between Q2 2022 and Q1 2023), Q3 confirmed the loss of momentum observed in Q2 (37,000 new jobs after 27,000). Payroll employment in construction and the temporary employment sector are contracting. However, industry continues to create jobs (12,000), as do non-temporary trade services (34,000).
Recent business surveys suggest that the cyclical environment in the Eurozone, Germany and France is stabilising but it would be premature to call it a bottoming out. Such a positive development seems unlikely in the near term. Monetary policy is expected to remain tight for some time and part of the effect of the past rate hikes still needs to manifest itself. Bank lending policy is expected to remain cautious because of rising credit risk in a stagnating, high interest rates economy and credit demand from firms and households is weak. Significant progress in terms of disinflation seems to be a necessary condition for a lasting upturn in the economic outlook.
Without falling significantly, confidence indicators for the euro area confirm the current phase of stagnation, which is expected to continue into Q4 2023. According to the flash estimate, the composite PMI edged up by 0.6 points to 47.1 in November, while the European Commission's Economic Sentiment Indicator fell slightly in October, down by 0.1 points to 93.3 (its lowest level in three years). Despite the current deceleration in inflation (from 4.3% y/y in September to 2.9% y/y in October in harmonised terms) and an unemployment rate that is close to its lowest ever (6.5% in September), household confidence is not recovering, against a still difficult backdrop in terms of purchasing power
Germany has just experienced four quarters of stagnation or negative growth, and business climate indicators suggest that economic activity remained broadly depressed at the beginning of Q4: current conditions of economic activity remain close to their lowest levels in both the IFO survey and the ZEW survey (-80 for the latter in November). In line with this depressed environment, production in key sectors (automotive, chemicals and metals) declined again in September (in Q3, it is now nearly 15% below the peak reached at the end of 2017 for each of these sectors). Exports do not drive growth as well (-6% y/y in Q3, trade balance figures in terms of value from Destatis).
The French economy is marked by growing signs of cooling, in terms of economic activity, employment and inflation. While growth has so far remained in positive territory, the INSEE business climate, which fell to 97 in November (compared to 100 between July and September), points to a deterioration. According to this survey, the decline in economic activity already present in part of the economy (housing, food trade) has spread to industry, new construction (excluding housing) and the motor vehicles trade.
