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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Consumer price inflation fell sharply in October, from 6.6% y/y in September to 4.6% y/y. Nevertheless, this decrease remains limited by the strong increase in wages, which continue to put upward pressure on services prices. A 5% increase in gas and electricity prices from 1 January has also been announced. In addition, the transmission of interest rates to mortgage interest payments remains significant (+50% between October 2022 and October 2023 according to the retail price index, RPI), and is weighing heavily on households’ financial situation.
The preliminary GDP estimate for Q3 shows a contraction of -0.5% q/q, while the most recent economic surveys have confirmed the slowdown in activity. The composite PMI fell 1.6 points in October, but remained in expansionary territory, standing at 50.5. This deterioration is due to the decline in the services PMI, which was down by 2.2 points (51.6 compared to 53.8 in September). The manufacturing PMI stabilised in contraction zone at 48.7.
With the exception of Japan, core inflation is falling in most advanced economies. The decline is quite widespread (food, clothing or household & equipment goods). This dynamic underpins our forecasts that no further rate hikes are expected from the Federal Reserve (Fed), the European Central Bank (ECB) and the Bank of England (BoE).
Global exports have levelled off for almost two years, after a strong increase in 2021. Export growth has stagnated in both emerging and advanced economies. However, the CPB data show a slight rebound in exports in volume terms in August, at 1.1% m/m, although the annual rate is still negative at -2.3%. The monthly increase was driven by China (+5.3% m/m) and the United States (+1.3% m/m),
Household confidence has dropped slightly since April. This reflects a decline in purchasing intentions for durable goods and a deterioration in the outlook for unemployment. Nevertheless, the Italian labour market remains on track. Unemployment fell to 7.3% in August, its lowest rate in fifteen years. As a result of this drop, recruitment problems are intensifying: the proportion of companies citing labour shortages as a factor limiting production was, in Q2 2023, the largest seen since the early 1990s. Although the working population is far from having closed the gap between the levels seen in 2019 (the deficit was 1.3% in August compared to the peak in April 2019), employment has continued to rise very significantly. This has helped to raise the employment rate (to 61
In September, the European Commission’s economic sentiment indicator fell to its lowest level of the year in Spain. This reflects a slowdown in activity which, according to our forecasts, will result in a slowdown in growth to 0.3% q/q in Q3 and 0.2% q/q in Q4. Inflation is also regaining ground and is again weighing on household confidence, as is the modest deterioration in the unemployment expectations index. It should be noted that the outlook for price developments differs quite significantly depending on the sector, according to the European Commission’s survey: it indicates a new pullback in price pressures in construction (-1.9 pts) and industry (-1.6 pts, the lowest since January 2021), while an upturn is observed in services (+3
The UK labour market has reached a tipping point. For the Bank of England (BoE), in addition to the slowdown in the housing market, this is a further indication of the wider transmission of the rise in interest rates to the real economy. The ONS labour market report for September was postponed until October 24th. Nevertheless, data from the HMRC indicated an 8,360 drop in employees last month; this is the second consecutive monthly fall and a steeper decline than in the previous month (-5,071). Furthermore, the PMI employment indices fell sharply in September, pulled down by services (-3.3 points to 47.9), which slipped below the rate of expansion for the first time since the beginning of the year.
Japanese economic surveys are sending out mixed signals. On the positive side, the business condition index from the Tankan survey improved from 8 in Q2 to 10 in Q3, driven by services: business confidence in the sector was the highest since 1991. The PMI for services is also proving resilient. Although down 0.5 points in September, it remains in expansionary territory at 53.8. Conversely, the manufacturing PMI fell further into the contraction zone for the fourth consecutive month (-1 point to 48.5). As a result, the composite PMI dipped to 52.1 in September. The Economy Watchers Survey dropped from 3.7 points to 49.9 points in September.
In recent decades, Japanese companies have extended significantly their activity abroad. According to the Ministry of Industry data, a quarter (25.8%) of the total turnover of Japanese manufacturers is now coming overseas subsidiaries.
After sustained growth in H1 2023, driven by external demand, the Japanese economy is beginning to slow down. Private demand (household consumption, corporate investment) is offering little support for growth. Although inflation has stabilised at around 3%, it is eroding household purchasing power, which is still not benefitting from significant wage increases. Nevertheless, according to the Ministry of Finance data, corporate profits hit a new record in Q2. Fostering a better redistribution of profits to wages remains a priority for Fumio Kishida’s government, which is preparing a new wave of budgetary measures in October
Eurozone company surveys (PMI, European Commission) continued to deteriorate throughout the summer, although a slight improvement was observed in September for the PMI. The rise in policy rates by 25 basis points in September – the last one according to our forecast – will amplify this phenomenon. We do not expect a recession in the euro zone as a whole in 2023, but moderate growth at 0.5%, mainly due to a favourable carry-over effect in 2022. After a slightly positive first semester, eurozone activity is likely to stall in the second semester. Significant growth differentials are expected between the Member States.
Until this summer, the Spanish economy had proved resilient to the interest rate shock. Private consumption and investment were up respectively, 2.7% y/y and 2.0% in Q2 2023. The positive trend in the labour market and the savings accumulated during the pandemic supported household spending, along with the decline in inflation, which allowed purchasing power to stabilise. However, these supports are falling off. Economic activity will slow in H2 2023 but will not come to a standstill. However, with growth now forecast at 2.2% in 2023 as a whole, Spain will remain one of the drivers of the euro zone this year.
The UK economy shows increasing signs of deterioration. An upturn in unemployment is visible, and the PMI employment data fell sharpy in September. The consequences of monetary tightening are spreading and no sector has been spared; first and foremost, the housing market and even the public sector, recently shaken by the bankruptcy of several councils, including the city council of Birmingham, the country’s second largest city. While inflation in the UK is falling, it remains high compared to its European neighbours, notably due to stronger wage increases. However, the Bank of England is not expected to raise the Bank rate again, even though the vote in September (when a hike was expected) was decided by a single vote
In the United States, core inflation dropped again in August, as did the pace of wage growth. In the eurozone, headline inflation has fallen slightly below core inflation since July. The situation in the United Kingdom remains the most worrying, but the latest developments have been relatively positive. In Japan, the new inflationary context is leading to a recalibration in market expectations.
World trade in goods (exports and imports combined) continued to fall during the first months of the summer, but the trend must be put into perspective: apart from a few sectors, and mainly the automotive sector, the pent-up demand following the pandemic seems to have almost completely vanished; the trend in trade activity is therefore returning to levels more consistent with the ones prevailing before the arrival of Covid-19.
After proving resilient, the PMI surveys for the services sector are deteriorating more significantly. The indicator lost 3 points in August to 47.9, the lowest level seen since February 2021. In particular, the sub-indices relating to employment and new businesses creation fell significantly.
The slowdown in activity in the second half of 2023 should be contained: real GDP growth would only decline, from +0.4% q/q in Q2 2023 to +0.3% q/q in Q3, and +0.2% q/q in Q4. The deterioration in the PMI surveys is continuing in both the manufacturing sector and the services sector.
Growth in Q2 2023 was a positive surprise, with an increase in real GDP of 0.2% q/q, driven by corporate investment, and in particular by spending on transport equipment. Nevertheless, signs of deterioration in activity are multiplying and extending to all sectors.
Japanese economic surveys remain positive overall, despite contrasting results for August: the composite PMI was up 0.4 points to 52.6, while the Economy Watchers Survey fell by 0.8 points, returning to its June level of 53.6.
The rise in interest rates and the slowdown in activity in the eurozone are still not leading to a turnaround on the job creation front in Spain, quite the contrary.
After several months of improvement, global supply-chain disruptions appear to have bottomed out, and some signs of deterioration are emerging again. The synthetic indicator of the Federal Reserve of New York (FRNY; chart 3), which measures these tensions, rose slightly in June, for the first time in 2023, as did the PMI delivery times index, which is part of the FRNY aggregate indicator.
Economic activity in the eurozone is showing clearer signs of weakening, and our Nowcast now foresees a stagnation in real GDP in the second quarter of 2023. Retail sales were stable during the first two months of Q2. Survey data also offers little reassurance and seems to indicate a possible relapse in activity in Q3 which we currently estimate at -0.1% q/q: the composite PMI index deteriorated significantly in June, falling below the threshold of 50, to 49.9. The manufacturing sector index fell further into contraction and is now at levels comparable to those seen during 2020, in the midst of the pandemic.
Real GDP growth should halve in the second quarter compared to the previous quarter, at 0.3% q/q, before a further slowdown in Q3. Industrial production (down 0.5% over the first two months of Q2) and retail sales (slightly up by 0.1%) demonstrate the fragility of activity in the country. The composite PMI for new export orders also continued to deteriorate in June (-4.4 points to 43.3).
Economic activity in Spain remains dynamic. The fall in inflation, combined with employment gains this year, constitutes significant support for activity, which will counteract the increase in mortgage payments faced by some households. We now anticipate stable and moderate growth in activity at 0.4% q/q for the second and third quarters of this year. Retail sales in volume terms recovered in April (+4.1% m/m) before edging back down the following month (-0.4% m/m). Tourism activity in the spring suggests a summer season that will be, if not exceptional, at least as successful as 2019, which has been a record year to date: in May 2023, several indicators (number of foreign tourists entering the country, hotel stays) were above the levels recorded in the same period in 2019.
The UK economy contracted in May (-0.1% m/m) according to the ONS, after growth of 0.2% m/m in April. The services sector stagnated, while industrial production and construction fell by 0.6% and 0.2% m/m respectively. According to the June PMI survey, activity increased in the services sector, but decreased in the manufacturing sector. While the extra bank holiday for King Charles III’s coronation probably contributed to the downturn in activity in May, the UK economy remains in a more extended slowdown phase. The economy stagnated indeed on average over 3 months in May.
