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.
Over the past three and a half decades, the world has undergone profound change. From a situation of balance in the early 1990s -the peace dividend, the Great Moderation, globalisation- we have ended up in a world characterised by geopolitical, economic (supply side) and environmental disruption. A distinctive and fascinating characteristic of this new era is the coexistence of abundance (data generation and dissemination, investment needs) and scarcity (shortage of skilled staff given population ageing, difficulty in finding financing). These developments raise important questions
After a rebound to +1.5% q/q in Q1 2024, Chinese economic growth slowed to +0.7% q/q. It stood at +5% year-on-year in the first half of the year. The economic growth target of “around 5%” set by Beijing for 2024 remains achievable.
GDP growth, inflation, exchange and interest rates.
While recent economic data across the board suggest that growth was strong in Q2, leading indicators (business climate, household confidence) were more mixed in June, pointing to a more difficult Q3. This is particularly the case in the US, where even the ISM non-manufacturing index deteriorated sharply in June, while in Japan and the UK, growth should return to a more normal level after a very favourable Q2 (and benefiting from rebound effects in Japan, after a more difficult Q1).
The difficulties in the Eurozone manufacturing sector are intensifying. Industrial production fell again in May, by -0.6% m/m (-0.8% m/m for the manufacturing index). The deterioration in the PMI indicators for the euro area in June does not bode well for Q3, with a fall in the manufacturing index (-1.5 points to 45.8) and a decline in all the subcomponents (production, employment, new orders, stocks of purchases, delivery times). The input price index (which is not included in the calculation of the aggregate manufacturing index) is back above the expansion zone for the first time since February 2023. This is consistent with the trend in producer prices, for which the monthly decline has been slowing for several months and is now close to zero
Growth in exports to the United States (Germany's biggest export customer) has continued to drive German foreign trade in recent years, while trade with the eurozone and China has been relatively stagnant. For the past four months, however, the German PMI for export conditions has been above the threshold of 50 (albeit lower in June at 50.8 than in May at 51.9), suggesting a more global dynamic.
The French economy is once again feeling the weight of economic uncertainty, as shown by the rebound in the Banque de France's uncertainty indicator, which in July reached its highest level since autumn 2022 (energy crisis). This could weaken a business climate that is already a little less favourable in France (composite PMI at 48.8 in June) than in the eurozone (PMI above 50 for the past four months).
Italian inflation stabilised below the 1% mark in June (at 0.9% y/y) due to the still significant deflation in the energy component (-8.6% y/y), and the slowdown in food prices (2.1% y/y in May; -1.8 pp over three months). Although the producer price index is still negative year-on-year (-3.5% in May), it is beginning to strengthen on a monthly basis (+0.3% m/m), suggesting that the disinflationary phase in consumer prices could be reversed over the coming months.
2024 is shaping up to be a record year for tourism. Between January and May, the number of tourist arrivals in Spain reached 33.2 million, far outstripping the level recorded during the same period in 2023 (by 13.6%). Tourist spending (+21%), which significantly boosted services exports in Q1 (+10.8% q/q), is likely to have continued to do so in Q2. Nevertheless, despite its undeniable effects on Spanish growth, mass tourism is becoming a source of tension in the country due to its impact on access to housing and resources. This has led Barcelona City Council to introduce a plan to stop renewing tourist apartment licences, which will lead to their phasing out by 2029.
Expectations in terms of growth for Q2 remain favourable: we expect it to be +0.6% q/q compared to +0.5% q/q for the Atlanta Fed's GDPNow. However, several elements suggest a more difficult Q3. The ISM surveys in June returned a negative signal: mixed for the manufacturing component, which deteriorated marginally, to 48.5 (-0.2 points), against a backdrop of falling production (48.5, -1.7 points), more marked for the non-manufacturing index, which fell to 48.8 (-5.0 points), against a backdrop of a correction in activity (49.6, -11.6 points), and a deterioration in new orders (47.3, -6.8 points). The NFIB (Small Business Optimism Index) again rose only slightly in June (91.5, +1
The rise in activity is welcome news for the recently elected Labour Party. According to the ONS, the monthly figures for real GDP (or, to be more precise, real value added) show that UK activity rose by 0.4% m/m in May, following a levelling-off in April. Although the manufacturing sector (+0.4% m/m) and construction (+1.9% m/m) were more supportive of growth than services (+0.3% m/m) in May, it is the latter that have been driving activity over the past year, with a rebound in transport and logistics (+7.3% y/y) and a clear acceleration in ‘professional, scientific and technical’ activities (+4.1% y/y).
Japan's economic growth should benefit from a technical upturn in Q2: we expect growth of 0.5% q/q after the contraction in Q1 (revised downwards to -0.7% q/q). The outlook remains negative – particularly for demand, despite the tax cuts introduced in June – while household consumption spending contracted by -1.8% y/y in May. Furthermore, while wage increases (excluding bonuses) reached their highest level since 1993 in May (+2.5% y/y), a sign of the growing transmission of negotiated wage increases (+5.1% y/y according to the Rengo trade union), real incomes are still not rising (-1.4% y/y).
The Italian economy has seen strong recovery since the end of the Covid-19 pandemic. Since 2021, its annual growth has far exceeded that recorded on average in the eurozone, thanks to the implementation of expansionary fiscal policies, which have buoyed consumption and investment, and the gradual recovery of tourism. Since the beginning of 2023 however, economic activity has started to moderate, due to an unfavourable international environment and the gradual abolition of these fiscal measures. In addition, the latter have, by their very nature, impacted the State's public finances, placing the country under the European Commission's excessive deficit procedure (EDP) in June 2024.
The S&P Global PMI surveys are a key input in the assessment of the cyclical environment. Judging by the manufacturing PMI, many countries have seen a weakening of momentum in the second quarter of 2024 versus the first quarter. However, for most countries, the level of the PMI in June is still higher than in December 2023. Moreover, 17 countries out of 31 still have a PMI of 50 or higher, which reflects ongoing growth in economic activity. Focusing on the Eurozone and using the composite PMI to take into account the important role of services, it is reassuring to see that in June, although dropping from the 52.2 level recorded in May, the composite PMI was still in ‘real GDP growth territory’ at 50.9
In the US, uncertainty about economic policy, based on media coverage, rebounded in June after a brief dip in May. The June increase was probably related to the climate of political and monetary-policy uncertainty in the US a few months from the presidential election.
Poland’s economy has generally shown resilience during periods of turbulence since the financial crisis of 2008-2009. For instance, in 2009, the country was able to avoid a recession in contrast to neighbouring countries. Since 2020, successive shocks have constrained GDP growth momentum, but strong fiscal buffers enabled the authorities to implement generous supportive measures. The country remains amongst the best performing economies in the region in the early months of 2024, with its GDP above 11% in Q12024 compared to its pre-COVID levels. Overall, the country reinforced its position in Europe, judging from the increase of Poland’s economic weight in the EU (measured by GDP in purchasing power parity) and gains in market share
In China, manufacturing activity remains dynamic, but rising tensions with most of its trading partners and an increase in protectionist measures are now weighing on export prospects. At the same time, domestic demand continues to be held back by the crisis in the property sector, and credit growth is slowing despite monetary easing measures. Therefore, the authorities are expected to continue to ease cautiously their economic policy in the coming months. The financial difficulties of local governments and, more generally, the deterioration in public finances have reduced the fiscal room for manoeuvre. The central government is being pressed to take a more direct role in support measures.
Indian economic growth reached 8.2% for the fiscal year 2023/2024. However, this performance did not enable Narendra Modi's ruling Bharatiya Janata Party (BJP) to retain a majority in parliament. Over the next five years, the BJP will have to deal with the smaller parties that are partners in the coalition it leads to run the country. Adopting new reforms to further liberalise the economy could prove difficult. In addition, the Prime Minister may have to change the structure of budget spending in order to increase once again the share of subsidies and other social transfers, which have been falling for the past five years
President Lai Ching-te took office on 20 May. He is expected to continue the domestic and foreign policy agenda of his predecessor, in a more tense climate. On the one hand, Beijing could increase its military manoeuvres around the island. On the other hand, Parliament is now dominated by opposition parties, which are expected to slow down or block many government projects. The new administration will at least be able to count on a favourable economic situation to start its mandate. Economic growth has been accelerating over the past year, driven by the rebound in the global electronics cycle
The accession of several Central and Eastern European countries to the EU in 2004 has been accompanied by impressive growth in their respective economies. Improvements in labour productivity have enabled real wages to catch up over the last twenty years, but wage pressures have remained very strong over the recent period without, however, affecting the economies' competitiveness to date. The region also remains attractive for foreign direct investment and continues to benefit from nearshoring activities. In the short term, consolidating public accounts is a priority to comply with commitments under the Stability and Growth Pact. Some countries are already under EU's surveillance, with the opening of an excessive deficit procedure.
Economic growth prospects are improving for 2024, but the recovery is likely to be limited by still sluggish domestic demand. On the foreign exchange market, the Hungarian forint has come under downward pressure recently. On public accounts, the fiscal consolidation that began in the summer of 2022 has not significantly reduced the deficit. For 2024, the deficit will probably be less pronounced than last year, but will remain high in any case (around 5% of GDP). As a result, Hungary will probably be subject to an excessive deficit procedure in 2024
The messages sent out by the Brazilian financial markets and those of the real economy have become increasingly incongruent. Robust economic growth, low unemployment and relatively subdued inflation have become steadily overshadowed by rising political and fiscal risks, which have weighed more heavily on the currency, equity prices and the yield curve. Lula's parliamentary setbacks, his frictions with the Central Bank and increased interventionism have rattled investors already shaken by major revisions to global and local interest rate projections. The challenge for the second half of the year will be to bolster economic agents’ confidence in an effort to stabilise expectations.
Claudia Sheinbaum was elected President of Mexico on 2 June. The political and economic challenges she will face during her mandate are numerous, and mainly concern the sustainability of public finances, the reform of the energy sector (a particularly sensitive point in Mexico, especially in the context of nearshoring and renewed appeal to foreign investors) and the renegotiation of the trade treaty with Canada and the United States (UMSCA) in 2026. In the short term, as a member of the Morena party of the former outgoing President, the new President needs to find the appropriate distance from Andres Manuel Lopes Obrador and his supporters. Discussions relate in particular to the reform of the justice system that AMLO himself had proposed.
