Based in Paris, BNP Paribas' Economic Research Department is composed of economists and statisticians:
The Economic Research department’s mission is to cater to the economic research needs of the clients, business lines and functions of BNP Paribas. Our team of economists and statisticians covers a large number of advanced, developing and emerging countries, the real economy, financial markets and banking. As we foster the sharing of our research output with anyone who is interested in the economic situation or who needs insight into specific economic issues, this website presents our analysis, videos and podcasts.
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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 UK economy remains deteriorated, but the latest activity figures show a slight improvement at the beginning of 2024. The monthly ONS estimate indicates growth in added value of 0.2% m/m in January, buoyed by a rebound in retail and wholesale (+1.8% m/m) and construction (+1.1% m/m). Nevertheless, this follows a difficult second half of 2023, marked by a 0.5% drop in real GDP.
Consumer price disinflation stalled at the beginning of the year in Europe and the United States. With the tailwinds of energy price deflation fading, core inflation, which is still high, now accounts for almost all of the price increases in the United States. This is less true in the euro area and the United Kingdom, where food inflation still contributed almost a third to headline inflation in January. The decline in inflation in 2023 has led, in all areas, to a downward shift in household inflation expectations in the short-term (1 year) towards long-term expectations (5 years). Wage growth continues to outpace inflation and fuel a recovery in purchasing power, which appears to be stronger in the United States and the euro area than in the United Kingdom.
With zero growth in the last quarter of 2023, the Eurozone has narrowly escaped recession, but economic activity is still hanging by a thread. Over 2023 as a whole, the increase in real GDP just reached 0.5%, and the carry-over effect for 2024 is null, as a result of a second half that was even weaker than the first one. Nevertheless, our Nowcast currently indicates growth of 0.3% q/q in Q1 2024, which is higher than our December forecast.
The economic situation in the UK continued to deteriorate in Q4 2023. Real GDP contracted 0.3% q/q, after falling 0.1% q/q in Q3. Although economic activity remained marginally in positive territory for 2023 as a whole (with 0.1% growth), it deteriorated throughout the year, resulting in a negative carry-over effect for 2024. The growth outlook for 2024 is even more unfavourable, as economic activity is expected to stagnate in H1 before a sluggish recovery from summer onwards.
Global maritime freight stabilised in February after the previous month’s sharp rise following the escalation of tensions in the Red Sea. The Freightos index is currently stable, with a decline even observed on routes between China and Europe which had been most directly affected by the conflict in the Middle East and by the rise in transport costs. The New York Federal Reserve’s global supply chain pressure index was unchanged in January but is expected to rise again in February, reflecting longer delivery times in the PMIs.
Jeremy Hunt's announcement of the Spring Budget on 6 March will once again be a balancing act for the British Chancellor of the Exchequer. He has the difficult task of supporting an economy whose activity is stalling and investment needs are increasing, while trying to reverse the trajectory of the public deficit, which widened in 2023.
Headline inflation has stabilised in recent months in the United States, the euro area and the United Kingdom, while it has declined in Japan. Core inflation continues to fall and its decrease is broad-based. Aggregate indicators of price pressures, calculated using PMI surveys, deteriorated again amid longer delivery times linked to the ongoing disruptions to global maritime trade. The PMI input price indices are also up in the US and the UK (page 18).
Faced with a natural disaster and a political crisis, 2024 is off to a rocky start for Japan. However, the economic impacts of the earthquake that struck the country’s west coast on 1st January 2024 are expected to be fairly limited due to the authorities’ effective preparations and quick response in dealing with this type of event. After an expected growth of +0.4% q/q in the fourth quarter of 2023, activity should slow in the first quarter of 2024, although it will remain positive at 0.2% q/q. The fall in inflation and bond yields at the end of 2023 is providing some breathing room for the BoJ, which is expected to end its negative interest rate policy in March or April
Eurozone activity is expected to pick up moderately in 2024, buoyed by the fall in inflation and the start of a cutting cycle of policy rates, which, according to our forecasts, will take place in April. The labour market continues to surprise on the upside. However, industrial production is falling sharply and remains highly exposed to escalating tensions in the Red Sea and the repercussions on shipping and supply chains. 2024 will see a number of national parliamentary and presidential elections (Finland, Portugal, Belgium, Austria) and the European elections (6 to 9 June), which are likely to redraw the political landscape in the region and the balance of power within the European Parliament.
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 UK economy is flirting with recession. The downturn in activity in the second half of 2023 is expected to continue until spring 2024 before an expected sluggish recovery, which nonetheless will be supported by the Bank of England (BoE) beginning its monetary easing cycle. Despite an uptick in December 2023, inflation remains on its downward trajectory, which is clearly reflected in production prices and CBI surveys. The turnaround in the labour market, which is still muted, is helping to reduce upward pressures on wages. While this is good news for inflationary momentum, it is also weakening private consumption. The BoE has little room for manoeuvre, with an initial policy rate cut expected to occur in June 2024
The Red Sea conflict has already had a substantial impact on global shipping. While maritime freight prices are, at this stage, still well below the levels seen in 2021, when the global economy was recovering post-lockdown, they have spiked in January 2024. The Freightos index (chart 5) shows that transportation costs have tripled on average compared to the end of last year. Due to their geographical locations, China and Europe have been the regions most directly affected by these disruptions, and are already facing threefold (China-Europe route) to fivefold (Europe-China route) increases in transportation costs. However, the effects are gradually being felt on all global shipping routes
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%).
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
Inflation regained ground in the United States and the euro area in December, rising from 3.1% to 3.4% and from 2.4% to 2.9% year-on-year respectively. However, the breakeven inflation rates (10-year bonds) for the four major eurozone economies have fallen below those of the United States. The breakeven rate has also dropped in the United Kingdom, where the inflationary environment has improved, although it remains more deteriorated than in the other areas.
The Bank of Japan’s latest Tankan survey, published in December, highlights the country’s significant labour shortages and recruitment challenges. These are affecting all sectors and are even reaching record levels in almost a quarter of them. In order to facilitate the interpretation, the data in this table are converted in Z-score, which measures the number of standard deviations separating each index from its long-term average (1974-2023 period).
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
With the more pronounced disinflation of consumer prices and wages, the Bank of England’s decision to keep the bank rates unchanged at its meeting on 14 December was widely expected. Nevertheless, as in the euro area, the signal for a monetary pivot did not come. In fact, the three members of the MPC in favour of a rate hike in November maintained their position in December.
The revision of Japanese growth figures was unfavourable, resulting in a greater decline in GDP in Q3 than initially estimated (-0.7% q/q versus -0.5% q/q). The downward adjustment is largely due to greater destocking: the negative contribution was increased from -0.3 percentage points (pp) to -0.5 pp. Other significant revisions came from residential investment (from -0.1% q/q to -0.5% q/q), private consumption (0.0% q/q to -0.2% q/q) and public investment (-0.5% q/q to -0.8% q/q). Low household consumption can be explained by the contraction of real wages for the 19th consecutive month in year-on-year terms (-2.3% y/y in October). Overall, private demand reduced quarterly growth by 0.6 pp in Q3.
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.
The latest inflation data from the major developed economies have helped fuel the decline in bond yields and reinforced the conviction that the first policy rate cuts will take place in the first half of 2024 in the US, the euro area and the UK.
The evolution of international trade is sending rather reassuring signals about the state of global demand. New machinery and equipment orders from South Korea, as well as export orders from Taiwan – generally seen as two reliable indicators of global manufacturing activity – rebounded sharply in October.
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
Economic surveys remain deteriorated. The PMI indices indicate a contraction in activity that is now more widespread, although the downturn is particularly pronounced in the manufacturing sector. The manufacturing PMI fell by 1.9 points to 44.9 in October, while the services PMI dropped more sharply below the 50 mark, after recording a decline of 2.2 points to 47.7. The household consumer confidence index in Italy is decorrelating from inflation expectations– which have been stable since the spring – and is now falling due to the effect of more subdued economic and employment prospects. In fact, the monthly fall in the confidence indicator (-2.4 points) was the steepest in the last fifteen months
