In 2023, for the second consecutive year, Malaysia’s external accounts have deteriorated slightly, but are still strong. Over the first nine months of the year, the current account surplus decreased by 18.3% compared to the same period last year. The strong rebound in tourism has not been enough to offset the decline in the trade surplus caused by the global economic slowdown and the sharp contraction in demand for semiconductors and electronic products, which account for 36.3% of the country’s exports.
US household consumption was 10% above its pre-Covid-19 level in the third quarter of 2023 when French one was only slightly above (1%). This dynamism across the Atlantic is based on a somewhat more favourable trend in purchasing power but, above all, on a fall in the personal savings rate. American households have apparently showed a greater sensitivity to improving labour market conditions. As the latter are becoming less favourable and US households now have fewer extra savings to cushion the impact of monetary tightening, US growth could lose significant support.
According to the latest economic data out of China, the post-Covid recovery remains on track, although its momentum remains weak. In October 2023, growth in the services sector accelerated further (to +7.7% year-on-year compared with +6.9% in September), buoyed by the improvement in the performance of retail sales (+7.8% year-on-year in October compared with +5.5% in September).
Latest data on GDP growth, inflation, interest and exchange rates.
In Central Europe, national accounts for the third quarter were published earlier this week. Hungary has exited recession after 4 quarters of negative growth. Poland continues to experience erratic growth with a rebound this time. However, other Central European countries saw a slowdown in economic activity. Romania is no exception. Q3 GDP growth came in at 0.4% quarter on quarter after 0.9% in Q2. Romania’s economy should overall show resilience this year while some countries such as Hungary and Czech Republic may post a negative GDP growth in 2023.
The fall in the global composite PMI index continued in October. It hit the dividing line between the expansionary and contractionary zones (50.0, from 50.5 in September). This is a sign that global economic activity is flatlining in this early part of the fourth quarter of 2023.
Updated GDP, inflation, interest and exchange rates data.
The dynamism of French exports has noticeably slowed over the past few months. Although exports over the first 9 months of the year are EUR 14 billion higher than those recorded over the same period in 2022, most of this gain was achieved in Q1. Over Q2 and Q3, the cumulative increase in exports was limited to EUR 1 billion (compared to Q2 and Q3 2022), with aeronautical exports (+5.5 billion) leading the increase.
Monetary policy desynchronization between the Federal Reserve and the Bank of Japan (BoJ) has become huge. This has caused a significant weakening of the yen. Higher US yields have also exerted upward pressure on JGB yields, which in turn has forced a gradual adjustment of the BoJ yield curve control policy (YCC). Inflation developments in Japan increase the likelihood of a policy rate increase but policy normalization is a delicate task for domestic reasons as well as international spillovers. The BoJ has chosen a cautious approach, with very incremental steps, but in the meantime the yen has continued to weaken, creating the risk of a snapback once policy is tightened. Acting sooner rather than later seems to be the recommended route for the BoJ.
GDP growth, inflation, interest rates and exchange rates
Rather than slowing down, which is what one would expect considering the cumulative tightening of monetary policy, US growth has been stellar in the third quarter. Household consumption has been a key contributor to this performance but public spending, inventory rebuilding and a rebound in residential construction have also underpinned growth. It is to be expected that growth will slow down going forward. High mortgage rates will weigh on construction activity, there is a risk that companies will prefer to reduce their inventories if they expect softer demand and there are limits to how far households will want to reduce their savings rate and run down their excess savings accumulated during the pandemic.
The geopolitical risk index, which is based on the number of newspaper articles mentioning adverse geopolitical events, has recorded a huge increase in October. Whether this influences decisions of households and firms depends, amongst other things, on the (ir)reversibility of these decisions. Based on empirical research on the consequences of a significant increase in uncertainty, there is a concern that the recent jump in geopolitical uncertainty would directly and indirectly -via energy price uncertainty (oil, gas)- weigh on discretionary household spending and hiring decisions by companies, with both reactions potentially reinforcing each other. Considering that these decisions are easily reversible, the impact could be rather swift
Data on GDP, inflation, interest and exchanges rates.
Nigeria’s economy is fragile. Despite the rise in oil prices in 2021 and 2022, macroeconomic stability has continued to deteriorate. This is due to the low level of oil production, an artificially overvalued exchange rate and the surge in energy subsidies. Without a change in economic policy, the situation was only going to get worse. The new President, Bola Tinubu, decided to act quickly and decisively. Shortly after taking office in May, he announced the flexibilization of the exchange rate system and the end of energy subsidies. Unsurprisingly, the first measure fuelled inflation, which is expected to come close to 30% by the end of the year. More problematic is the fact that we are once again seeing a gap between the official exchange rate and the parallel exchange rate
The September data show that disinflation continues in the Eurozone. Moreover, this development is broad-based and for more than half of the HICP items, 3-month inflation is below the ECB’s target expressed on an equivalent basis. This increases the likelihood that the decline in inflation continues to spread through the Eurozone economy. However, despite the progress, inflation remains well above target. This implies that, if going forward monthly core inflation would correspond to the ECB’s target (expressed as a monthly number), it would still take until September next year for it to get back to 2% in terms of annual inflation
In Q3 2023, Chinese economic growth rebounded to +1.3% quarter-on-quarter, after a very poor +0.5% in the previous quarter. It stood at +4.9% year-on-year (y/y) compared to +6.3% in Q2 2023, but this slowdown is due to unfavourable base effects in Q3. Chinese economic growth reached 5.2% year-on-year over the first three quarters of 2023.
Economic surveys in September are sending out mixed signals. Consumer confidence is falling in most countries, which in some cases (France, Spain) underlines a slight rise in inflation. This loss of confidence is also accompanied, in general, by a decline in purchasing intentions for durable goods, which can be linked to high interest rates and an expectation of a moderate downturn on the labour market. Lower consumer demand is affecting companies' order books, with an impact that varies according to sector. In industry, economic surveys are more affected, while in services, activity remains dynamic in the US and Japan, while being more modest in Europe.
The inflation situation, in the Eurozone, is cooling. Added to this good news is the surprising continued drop in the unemployment rate (6.4% in August compared with 6.7% at the beginning of the year). But these positive developments are offset by a cooling also being seen in the European Commission Economic Sentiment Indicator (ESI). Given the weakness of confidence surveys, real GDP growth – only just positive in Q1 and Q2 2023 (+0.1% q/q each quarter) – is expected to be close to zero. We expect nil growth in both Q3 and Q4 2023, a forecast aligned with our nowcast estimate, also at zero.
German inflation resumed its downward trend, after stabilising between May and August (6.4% y/y in August according to the harmonised index), to reach 4.3% in September, due, firstly, to base effects (seasonally adjusted inflation was 2.3% m/m in September 2022, compared to a more normal 0.3% in September 2023). We expect a further drop in inflation of nearly 1 pp in October for the same reason (+1.1% m/m in September 2022 1 pp above the average for October over the last 15 years). Underlying inflation also fell to 4.8% y/y in September after a high of 6.3% in August 2023
The hierarchy has changed: French inflation, which was well below inflation in the eurozone, is now higher (5.7% in September compared to 4.3% y/y, according to the harmonised index). On average, French inflation even exceeded its June-July level by nearly 0.5 points in August-September (compared to a drop of 0.6 points in the euro zone). This was due to the rebound in energy prices, which was stronger in France, particularly with the increase in the regulated electricity tariff in August 2023 (+10%). Conversely, the drop in underlying inflation continued (3.6% y/y in September compared to 4.3% in July). This is mainly due to stabilisation of the (seasonally adjusted) index for manufactured goods prices between April and September.
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
Business climate has marginally weakened in September in the United States due to diverging developments in the Manufacturing and Non-Manufacturing sectors. The latter has slowed to 53.6 (-0.9pp) in the ISM survey, torn between a vigorous activity (‘Business Activity’ component standing at 58.8) and a large drop in ‘New Orders’ (51.8, -6.7pp). On the other hand, the ISM Manufacturing index rose for a third month in a row and reached 49.0 (+1.4pp), thereby reaching a 10-month high despite remaining in the contraction area.
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.
