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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Bottlenecks in shipping transport are already intense and could get worse. First, it is becoming very difficult, not to say impossible, to move merchandises by rail and road networks between China and Europe, because of the routes crossing Russia and the conflict zones in Ukraine. Furthermore, many Chinese production lines, and logistics around the country’s ports, have been disrupted by a resurgence of Covid-19 cases and the authorities’ ‘zero-Covid’ policies.
Italy’s industrial output fell 3.4% month-on-month in January. There is now a high risk that GDP will contract again in Q1 because of the war in Ukraine and the impact of surging commodity prices on Italy’s economy. Italy is particularly dependent on Russian gas, with almost 45% of its imports coming from this country. Even if Rome is planning to carry out a drastic shift in its gas imports – sourcing gas from other countries like Algeria and Azerbaijan – and to increase its LNG consumption, these changes will take time to materialise.
Abundant job creations in the Eurozone helped bring down the unemployment rate to a historically low level in 2021, but this has also led to hiring difficulties and labour shortages. Labour shortages seem to be having the most restrictive impact in Germany (in all sectors), given the already low unemployment rate. They seem to be weakest in Italy where the job market is less dynamic, and this hierarchy was confirmed regardless of the sector. In France, labour market tensions are the highest in the construction, and comparatively less important in the manufacturing and services sectors. Production constraints due to labour shortages have reached a record high in the services sector, especially in Germany
After a spectacular rebound in 2021, global trade in goods is likely to see slower growth this year. The World Trade Organisation’s latest forecasts show that trade in goods will rise by 4.7% this year, following a jump of 10.8% in 2021. The global PMI manufacturing new orders index also fell below the 50 threshold in January, for the first time in a year and a half. That said, the slowdown will not be visible in all sectors. Indeed, demand for semiconductors remains very high, and this dynamic largely explains why Taiwan continues to record rapidly rising export orders.
With the rise in sovereign interest rates in Europe, concerns about public debt in Italy are resurging. Can we make a connection with the situation in Italy in 2010/2011, during the sovereign debt crisis that shook the euro zone?
In Japan, possibly more than anywhere else, it is important to distinguish the dynamics between headline and core inflation. Headline inflation – at 0.5% in January – is bound to rise further, led by higher energy prices. By contrast, core inflation is still deeply in deflationary territory, and this trend is amplifying. Excluding perishable food products and energy, the consumer price index (CPI) declined by 1.2% year-on-year in January, the biggest decline since March 2011. The services sector even has reported the strongest deflation since 1970 (-2,8%), mainly due to the sharp drop in mobile phone charges, down more than 50% since March 2021. Medical services were also down (-0.8% y/y), as was durable household goods (-3,0% y/y), and leisure goods (-1.1% y/y)
Concerning the Italian economy, now that the presidential election is behind us, attention has focused again on the risks associated with surging inflation and the upcoming start of the normalisation process of ECB monetary policy. 10-year Italian government bond yields have risen by nearly 50 basis points since early February, and they could reach the 2% threshold very soon.
As shown on our Pulse, the sharp increase in inflation has continued in January, with the harmonised index of consumer prices (HICP) up 6.1% y/y in January. Although the details of last month’s inflation have not yet been revealed, energy prices should remain, unsurprisingly, the main driver of higher consumer prices. The energy element of the HICP recorded a jump of 40.2% y/y in December 2021, whilst the sector’s production prices nearly doubled (+95.9% y/y) between December 2020 and December 2021.
Although Germany is not the eurozone country experiencing the highest inflation rate, the trend is nevertheless uncomfortable. Consumer prices posted another hefty rise in January (+5.1% y/y, harmonised index), although this was less than in December 2021 (+5.7%). The end of positive base effects – caused by the end of the VAT rate cut in place in the second half of 2020 – did not therefore result in a marked fall in inflation.
2022 will be another tense year for international trade. Although some of the tensions are easing, visibility is still limited and supply-chain bottlenecks will probably continue for much of the year, affecting the outlook for growth and inflation.
With less than two weeks to go before Italy’s presidential election – the first round of voting takes place on 24 January – a candidacy of the current Prime Minister, Mario Draghi, remains a distinct possibility. If Mr Draghi becomes Italy’s president, this would probably have repercussions for the current governing coalition, although it is not currently possible to predict what they might be. In the meantime, Covid-19 cases are continuing to surge, with around 170 000 new contaminations recorded in mid-January. This has prompted the government to make vaccinations compulsory for people aged over 50.
The fairly substantial upgrade to Spain’s Q3 GDP figures underlined again the problems that the Spanish statistical office (INE) is currently facing when collecting data. To recap, third-quarter growth was revised up from 2.0% q/q to 2.6% q/q and this follows a large downgrade for Q2, from 2.8% q/q to 1.1% q/q. Employment will remain in the spotlight in 2022, since it offers a parallel measurement of economic activity and one that is currently more accurate than GDP.
The indicators currently available for the end of last year suggest that Germany recorded weak growth at best in Q4 2021: a GDP contraction cannot be ruled out. Industrial orders remained at a relatively strong level, but production continued to be held back significantly by supply problems for certain components.
Instead of drastically restricting conditions of activity, the government only made a few adjustments to their policy for combatting the pandemic: the state of emergency was extended for three months to 31 March 2022. Despite the resurging pandemic, business prospects are still looking upbeat this winter. PMI indices are holding at high levels, especially for the manufacturing sector. In November, the manufacturing PMI rose 1.7 points to a new high of 62.8, supported by the improvement of the employment and new orders components. The services PMI also improved, up 3.5 points to 55.9. The composite PMI for the past three months has held steady compared to three previous three months, as shown in the Pulse below.
Despite a substantial increase in new Covid-19 infections since the start of November, the infection rate is currently below those in France or Germany. Meanwhile, concerns about the health situation have had little effect on business confidence so far: the PMI Composite index improved in November (up 1.9 points to 58.3) thanks to better prospects in services. The positive trend in this sector can also be seen in the European Commission survey, which reveals levels of optimism not seen for twenty years. This said, household confidence has fallen back, mainly due to fears of rising consumer prices.
The Covid-19 pandemic has laid bare weaknesses and vulnerabilities in global supply chains. It has increased calls for making global value chains (GVCs) more robust and resilient, and reducing the dependence on East and Southeast Asia. Enterprises are in the process of improving the resilience of their supply chains by improving the transparency of their value chains, and building more redundancy in supplier networks, and transportation and logistics systems. At the macro-level, both the United States and the European Union have been updating their industrial strategies to increase their autonomy in strategic sectors. However, we should not forget that GVCs in itself is not the problem
Despite a rather weak recovery in GDP, the Spanish economy has been much more resilient on the labour market front in 2021. Employment (November) and the participation rate (Q3) are at record levels. Inflation will be one of the biggest obstacles in 2022, the increase in production prices having accelerated markedly this autumn. Support for growth will remain a government priority in 2022. The country will benefit from a larger transfer of European funds that will help finance a record budget of EUR196 billion. The reduction in the government deficit will be again pushed into the background, the authorities mainly betting on economic growth to reduce the deficit-to-GDP ratio.
The Greek economy has surprised on the upside so far in 2021. Real GDP growth is expected to exceed 7% this year. The unemployment rate has fallen to 13% in September. This improvement has allowed the banking sector to continue its clean-up, with a non-performing loan ratio close to the 20% threshold at the beginning of the summer. Difficulties on the economic, social and banking front remain amongst the most pressing in the European Union. This said, unless there is a further complication on the health front, Greece will go into 2022 on a much better basis than in previous years.
The Covid-19 crisis is still generating lively discussions on the future of globalisation of trade and finances, and global value chains. The share of foreign value added embedded in the exports of a country or region[1] is a good indicator of the level of involvement in global value chains. This share increased rapidly from the early 1990s until the global financial crisis of 2008, under the effect of trade liberalisation (cuts in tariffs and proliferation of free trade agreements) and falling transport costs. This increase was particularly significant in Asia, the emergence of China as the factory of the world leading to the imports of more intermediary goods mainly from Europe and North America
World trade tensions and supply chain frictions will continue to be major sources of uncertainty in 2022, given their impact on imports prices, and in turn, consumer prices. Based on simulations, UNCTAD estimates that an increase in maritime freight costs would drive up global import prices by 10.6% by the end of 2023, with a smaller but non-negligible impact on global consumer prices of 1.5%. There is also a risk that shortages of certain key components, notably semiconductors, persist for several more months.
After two solid quarters, Italian GDP growth is expected to slow in Q4 2021. Real GDP rose 2.7% q/q in Q2 2021 and 2.6% q/q in Q3. Yet there was an encouraging catching-up movement through the fall, which led the European Commission to revise strongly upwards its 2021 growth forecast, to 6.2%, from its previous outlook of 4.2% last spring. While a new epidemic wave could weigh on activity in the coming weeks, Italy is currently facing a level of contamination much lower than most other European countries.
Like other economies, Spain is currently facing several headwinds, including labour shortages, supply-chain problems and inflation. The country is now also facing the risk of another upsurge in the pandemic. In mid-November, the number of Covid-19 cases was still holding at a very moderate level, but it now seems to be ticking upward, a movement that is bound to accelerate with the approach of winter. Even so, Spain benefits from a high vaccine coverage ratio (more than 80% of the population is fully covered by the vaccine), meaning that the country can look forward to a less perilous winter than last year.
Employment in Spain continues to pleasantly surprise this autumn. The number of employees affiliated with the social security system increased in October (+102,474), reaching a record level of 19,662,163. Significant numbers of jobs created were recorded in sectors that have partly "benefited" from the health crisis and the structural changes it has caused or amplified (information and communications, health and social care, logistics and transport). The unemployment rate remained high (14.6% in September), as did underemployment (7.4% of the total working population), but the participation rate for 16 to 64-year-olds was at a historically-high level (75.8% in Q3 2021). While the first GDP estimate for Q3 2021 was disappointing overall (+2.0% q/q after an increase of just 1
Although tensions in world trade remain fierce, there were some signs of easing in October. The Baltic Dry Index (BDI), which reflects the cost of maritime transport for dry bulk goods, declined by around 30% after peaking in the first week of October. Nonetheless, the rise in costs since the start of the year remains impressive, nearly a tripling. Looking more closely at October’s figures, we can see that the decline in the BDI was limited solely to very high tonnage container ships, while freight prices continued to rise for smaller vessels.
The substantial rise in energy costs being seen in European economies undeniably represents a headwind to the economic recovery, notably through its negative impact on household spending. In 2015 – the most recent year for which Eurostat data are available – at the aggregate euro zone level direct energy spending represented between 9% and 10% of total household spending, making it the third largest cost item after food and housing. The weight in total consumption of spending on “electricity, gas and other fuels”, which is defined by France Strategy as ‘pre-committed spending’[1], is negatively correlated with the income level of households