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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With a relatively limited risk of energy shortages, Portugal should record some of the largest economic growth in the eurozone this year. A number of favourable factors are driving these growth levels. There has been substantial carry-over growth from 2021 and real GDP rose sharply in Q1 (+2.4% q/q), before stabilising in Q2. The recovery in tourism has also boosted business activity this summer. Despite the aid measures for households and businesses, which the government estimates are worth EUR 4 billion so far in 2022, there should be a slight surplus on the primary budgetary balance for this year
On the whole, global trade tensions are continuing to subside, but new areas of friction are emerging as a result of the war in Ukraine. The New York Federal Reserve’s supply-chain pressures index has fallen significantly since the beginning of the year to reach its lowest level in 18 months in August. Another visible indicator of this reduction in bottlenecks is shortening delivery times: the global manufacturing PMI (purchasing managers' index) rose to 44.8 in August from 35.8 four months previously. A rising figure indicates a reduction in delivery times. However, this remains below its historical pre-pandemic average.
The results of Italy's parliamentary elections have handed power to the right-wing coalition led by Giorgia Meloni. The new administration will quickly be put to the test, since it will take over an increasingly struggling economy exposed to a high risk of recession this winter. Our current forecast is that real GDP will fall by 0.4% quarter-on-quarter in the fourth quarter, followed by a 0.2% q/q drop in the following quarter. The industrial sector, the first section of the economy affected by disruption linked to the war in Ukraine and the rise in production costs, is experiencing a downturn.
Inflation in Spain shows no signs of abating. Consumer price inflation remained above 10% y/y in August, at 10.5% (national measure). Although slightly lower when compared to July (10.8% y/y), this decline was mainly due to a fall in private transport costs (-3.5% over one month), the result of lower fuel prices at the pump. Conversely, the increase in food prices (and non-alcoholic beverages) accelerated, by 0.3 of a point to 13.8% y/y, with increases seen in dairy products, bread, and corn. The underlying measure (which excludes energy and perishable foods) also rose, from 6.1% y/y to 6.4% y/y. Prices also continue to be very dynamic in the property sector.
Although supply timescales are still historically long, the PMI index which assesses them has gradually improved since last autumn. According to the PMI sector survey, this reduction in delivery times can also be seen in most industries, particularly in the automotive, electronic equipment and agri-food sectors. As a result of these reductions, the backlogs of work indicator recorded its biggest fall in over two years. The aggregate value chain pressures index, which is published by the Federal Reserve of New York, confirms these positive developments. It has fallen to its lowest level since March 2021. These gradual but continuous improvements should help to ease some of the inflationary pressures currently weighing on the manufactured goods sector in particular.
Spain’s labour market is still delivering pleasant surprises, with a net job creation rate of almost 263,000 during the first half of 2022[1]. However, beyond these rising numbers, the major change on the labour market was in recruitment processes in February as a result of employment law reforms, which most notably set out to tighten the conditions for using precarious short-term contracts. These reforms have produced immediate results, with a leap of more than 1,130,000 in the number of permanent contracts since the beginning of the year, which is an increase of 12%. These increases have been particularly large in the accommodation/restaurant (+32.5% over the last six months), construction (+30.8%) and arts and leisure activity (+18
Since 8 July, a new governmental scheme has offered an ‘anti-inflation’ cheque of EUR200 per person to 2.7 million of the most vulnerable Spanish households. This measure is part of a total package of EUR9 billion, approved by the authorities at the end of June. This also includes another cut in VAT on electricity (from 10% to 5%) and a cut in travel costs. These steps to support households’ purchasing power are welcome as inflationary pressures continue to rise.
Although real GDP held up in Q1 (+0.1% q/q), our barometer clearly shows that the economic outlook is worsening. Annual inflation rose again in June, going from 7.3% to 8.5%, while manufacturing output stagnated: although Italy’s manufacturing PMI remained in the expansion zone at 50.9 in June, it fell for the seventh straight month and has been down 11.9 points over that period.
The latest results from the Tankan survey show a fragile but stable outlook for Japanese industry (the balance moved from 2 to 1), whilst confidence in the service sector improved (the balance rose from -2 to 4). The total balance of opinion improved from 0 to 2. Amongst large companies, the improvement in confidence was the biggest in personal services (up 32 points to 18) and hotels and restaurants (up 25 points to -31), even though confidence in the latter remains very low. Conversely, the sectors suffering the biggest falls were lumber and wood products (down 20 points to 0) and iron & steel (down 16 to -6).
Since early 2022, inflation has been rising, albeit moderately, for the first time since 2014, while growth contracted in Q1. The yen has depreciated sharply due to the Bank of Japan’s very accommodating monetary policy, which is out of step with the other major central banks, who have already begun to tighten their monetary policy. In June 2022, BoJ Governor Haruhiko Kuroda still thought it was “necessary” to maintain a yield curve control policy to boost core inflation to a “stable and sustainable” level. Yet currency depreciation aggravates imported inflation and further erodes household purchasing power. A few weeks before the legislative elections of 25 July, the government is likely to reinforce measures to support household purchasing power.
After a weaker economic rebound than its European neighbours in 2021, Spain is expected to report solid growth of more than 4% in 2022. Despite the Ukraine war’s impact on inflation and purchasing power, the job market remains on an uptrend, with 186,000 jobs created in the first five months of the year. This dynamic should extend into the summer months with a stronger recovery in tourism, although current disruptions affecting the airlines in Europe could undermine this outlook. Moreover, inflation might not peak until later in the year, since price increases for food and household appliances are currently gaining traction.
After surging above 10% this spring, inflation will be the main headwind hampering Greek GDP growth in 2022. Yet the economy has proven to be resilient so far. Unemployment has been at the lowest rate since 2010, and GDP has rebounded robustly since the end of lockdown measures in 2020. A recession is unlikely this year, especially since tourism is primed for a solid summer season. On 20 August 2022, Greece will officially exit the European Commission’s enhanced economic surveillance programme, which it entered in June 2018. In May, the country also repaid the last of the IMF loans (EUR 1.9 bn) contracted during the 2011 crisis. Eleven years later, Greece is taking another step towards the normalisation of its economic system.
Although some signs of improvement are visible on certain trade routes—notably between China and the West Coast of the US—the overall situation is still far from a return to normal. The lockdown in Shanghai will continue to have significant repercussions for the operation of ports in China and elsewhere in Asia throughout the second half of 2022.
The strength of the employment data reflects a degree of resilience in the Spanish economy in the face of the multiple shocks. According to the Spanish Employment Office (SEPE) an additional 33,366 active workers (+0.2% m/m) were registered in the social security system in May, the thirteenth consecutive month of growth. The government is expecting a further increase in June. Meanwhile, unemployment fell by 41,069 in May, to its lowest level since 2008. This decline was driven by a further drop in youth unemployment (25 and under), of 21,974.
The deterioration of the business climate surveys continued in May, particularly in the manufacturing sector, even though industrial production held up until April. Output rose 1.6% m/m, to its highest level since December 2007. However, the manufacturing PMI dropped 2.6 points to 51.9 in May, its sixth consecutive monthly fall. The sharp fall in this indicator shows up clearly in our barometer.
In 2021, sales by foreign subsidiaries of Japanese industrial companies accounted for nearly a quarter of total sales. China is the main anchor country, particularly for the automotive industry. Despite this, Japan has retained a larger industrial base than most other OECD countries. The sector accounted for more than 20% of total national value added in 2021. The share of goods exports in GDP has also increased, reaching 16.4% in Q1 2022. This production structure for Japanese companies, based on the complementarity between domestic facilities and foreign subsidiaries, has helped support profits, which climbed to a record as a share of GDP in Q1 2022
Global PMI numbers point to a significant slowdown in global economic activity. The new export orders sub-index dropped to 48.1 in March, below the threshold for expansion, and was unchanged in April. More specifically, new export orders for Taiwan recorded a heavy fall (down 17.2% m/m), the biggest drop for fourteen months. Although a pullback was expected, following a strong rise in March (21.6%), the scale of the decline was surprising.
The Italian economy began 2022 on a wrong footing, with a 0.2% q/q contraction in real GDP in the first quarter. The country has been hit hard by the war in Ukraine and by lasting disruption in world trade. These factors are having a particularly strong effect on economies with a large industrial base, as is the case in Italy. Inflation, which was 6.3% y/y in April (down from 6.8% y/y in March), has also had a significant negative effect on household confidence. According to the European Commission, consumer confidence increased very slightly in April (the balance of opinion rose 1.9 points to -22), but March had been the worst month since January 2014.
The sharp rise in energy prices since April 2021 has been the main driving force behind the current surge in Eurozone inflation. The outbreak of war in Ukraine on 24 February accentuated this trend, sending the energy component of the harmonised index of consumer prices (HICP) up 44.4% y/y in March 2022. Faced with this situation, the governments of the four main Eurozone economies under review in this article have acted to try to buffer the shock on economic players, and notably on household purchasing power, via direct subsidies, tax cuts, price regulations and measures to boost nominal incomes
Latest inflation figures give the Spanish government a little respite. Having approached 10% in March (9.8%), consumer price inflation fell to 8.4% in April. Measures taken by the authorities to stem the rise in energy prices – mainly through subsidies and tax cuts – had a beneficial effect. However, food price inflation rose to 10.1% y/y in April. In addition, its contribution to overall inflation (1.98 percentage points) is now roughly the same as other energy-related components of expenditure, i.e., transport (1.98 points) and electricity, gas and other fuels (2.30 points).
The Spanish housing market is building momentum again after its deep correction between 2008 and 2013, which erased part of the excesses created over the early 2000s. In 2021, transaction volumes hit their highest level for twelve years. House prices have been growing at an average of 5% per year over the past six years. Housing activity is now benefiting from multiple sources of support: the post-Covid economic recovery, higher levels of household savings, growth in employment, low borrowing rates. Rising housing prices are driven by limits on housing supply, which are likely to persist, given rising construction costs as a result of higher materials expenses
After the World Trade Organisation (WTO), the International Monetary Fund also revised significantly lower its forecast for global trade for 2022. Exports are now expected to rise by 4.4%, compared with an estimate of 6% in October. This is above the WTO’s projections of 3% growth in 2022. Given the sharp rebound seen in 2021 – an increase of 9.8% – a lower rate of growth in goods exchange was expected. However, the war in Ukraine and the difficulties facing China in terms of its economy and the public health situation are important headwinds to growth. Some signs of this slowdown can already be seen: the global manufacturing PMI index for new export orders dropped sharply in March (-2.8 points to 48.2), reaching its lowest level in 18 months (chart 2)
Inflation in Italy reached 6.7% y/y in March, the highest level since July 1991. In addition to the spectacular rise in energy prices (electricity, gas & fuel) – up 50.9% y/y – there are now significant increases in prices for food products (+5.8% y/y), furniture (+8% y/y), as well as for the hotels & restaurants sector (+4.6 % y/y). That said, two consumption items are still in deflationary territory: education (-0.5% y/y) and communication services (-2.9% y/y). Nonetheless, the hardest part has yet to come: the latest PMI survey for March showed once again a significant increase in input prices, which was the strongest on record (+6.7 points to 81.5). This will feed through to higher consumer prices: this PMI index is indeed very well correlated with the CPI.
While the US Federal Reserve has begun raising its policy rate, the Bank of Japan continues to pursue a very accommodating monetary policy. The sharp depreciation of the yen leaves the BoJ less manoeuvring room to pursue its yield curve control policy. Some adjustments in its policy are expected. Economic support – both monetary and fiscal – will be maintained in 2022 in an environment that is especially tough for Japanese industrial companies, hard hit by global supply chain disruptions and the economic slowdown in China.
Although Spain is not the European country with the highest “structural” exposure to the war in Ukraine, it has been hard hit by the energy price shock. Inflation will certainly exceed 10% year-on-year this spring. Higher petrol prices have triggered protests that have spread across the country, disrupting economic activity even though the impact on growth should be modest. Job creations were still resilient in Q1. Household confidence as well as business expectations of future orders both dropped sharply with the outbreak of the war in Ukraine, which will have an impact the dynamics of hiring. The recovery of the tourism industry will partially offset the loss of consumer spending due to the erosion of household purchasing power in Spain.
