With a peak in inflation last autumn and fears of energy shortages during the winter, the IFO’s index hit an historic low in October 2022. This index has recovered to normal levels, as winter turned out better than had been feared. However, following the poor performance of Q4, all signs point to this being just a “technical” rebound in activity.
GDP growth, inflation, interest rates and change
In February, economic news on the growth front continued to be quite positive in the major OECD economies, while developments on the inflation side were negative.
Give or take a few details, the economic overview for February is a carbon copy of the economic overview for January: rather positive in terms of survey data, negative in terms of inflation.
Industrial activity saw a clear upturn in January (+3.5% m/m), after a significant downturn in December (-2.4% m/m). For example, intermediate goods and construction, which fell sharply in December, returned to a level of production close to that of November.
In February 2023, although to a lesser extent, INSEE’s business climate survey rebounded, by 1 point to 103, reaching its highest level since August 2022. It was supported by the services sector and by industry.
The GDP contraction of 0.1% q/q in the fourth quarter of 2022 – due to a marked drop in consumer spending (-1.6% q/q) and the negative contribution from inventories – should not lead us to overlook the very good investment figures.
Trends in the PMI indices are making a short-term economic downturn less likely. Our initial forecasts of a contraction in economic activity for Q1 2023 were also revised upwards, with moderate growth now expected (+0.2% q/q).
In February, the evolution of business climate survey data was positive. On the other hand, consumer confidence surveys have moved in opposite direction:
According to the ONS, British GDP recovered by 0.3% m/m in January, after dropping 0.5% m/m in December. Services contributed 0.4 points, thanks in part to a return to normal working levels in January.
Japan's economic growth stalled significantly in January. Chinese New Year on 22 January likely contributed to the sharp drop in industrial production, which was down 5.3% m/m.
The currently high level of inflation remains the biggest threat to the global economy, according to the OECD. Granted, we already seem to have passed the inflation peak several months ago, notably in the United States and the Eurozone. But so far inflation has not fallen much. Yet several factors are helping to reduce inflationary pressures. One of these is the ongoing reduction in the supply-demand imbalance: indeed, supply is coming under fewer constraints while they seem to be rising for demand.
Economic indicators for the first two months of 2023 show a rebound in activity following the abandon of China’s zero Covid policy in early December and the end of disruptions caused by a spike in contaminations in December-January.
The European Commission survey of consumer confidence has found, over the past four months, a marked improvement amongst German consumers, driven by an upturn in their expectations for the general economic situation. Conversely, French consumer confidence remains depressed and is still not showing any sign of improvement. Assessments of the past situation are also diverging, with that in Germany also improving, albeit to a lesser extent.
February S&P Global PMI data provided good news overall. One of the key results is the recovery in China's manufacturing PMI, which reached 51.6, its highest level in eight months (compared with 49.2 in January). This improvement is linked to the gradual recovery in factory production since the lifting of health restrictions. In the eurozone, the figures are mixed down in France, Germany and Austria, but up quite sharply in Spain, Italy and Ireland. In the United States and Japan, the index remained below the 50-point threshold, i.e. in a contracting zone for the fourth consecutive month.
Outlook for GDP growth, inflation, interest rates and exchange rates.
The Gulf countries (GCC) – Saudi Arabia, Bahrain, United Arab Emirates, Kuwait, Oman and Qatar – are experiencing an economic boom. The discipline of the cartel of oil-producing countries and international geopolitical tensions are keeping oil and gas prices high and feed into the fiscal and external accounts of countries still highly dependent on oil revenues. Contrary to previous periods of economic upturn, it seems that most governments are maintaining a degree of fiscal discipline, which, over the medium term, should reduce vulnerability to variations in oil revenues. In the longer term, climate change and the associated energy transition pose an existential challenge for these hydrocarbon-based economies
In 2022 as a whole, average economic growth in Emerging Markets (EMs) slowed to an estimated 3.8% down from 6.6% in 2021. The slowdown followed the post-Covid shock rebound of 2021 and was much aggravated by the rise of powerful headwinds throughout the year, including: the repercussions of Russia’s war in Ukraine on activity in Europe and global inflation, monetary tightening to fight against price pressures, the weakening in Chinese economic growth (notably resulting from Covid-related disruptions and the crisis in the property sector), and the downturn in world trade.
On 22 February, the South African National Treasury set out its budget plan ahead of the new fiscal year, which will start on 1 April. After slightly revising its fiscal balance upwards since October 2022, the Treasury now expects a primary surplus starting from the current fiscal year. This performance should gradually improve over the next three years.
The preliminary inflation numbers for February had the effect of a cold shower due to the acceleration of core inflation. To assess the observed price developments since the start of last year, monthly inflation has been calculated for the more than 400 HICP components. The frequency distribution for average monthly inflation between October 2022 and January 2023 has hardly shifted compared to that for the first quarter of 2022 but the nature of inflation has shifted. Annual energy price inflation has dropped but food price inflation continues to accelerate. As the different shocks reverberate, inflation becomes sticky. Going forward, wage developments should also play a key role
The slight upward trend observed since mid-April 2021 has reversed course since year-end 2022 and early 2023, probably in line with the signs of easing inflation through January. In the United States, business uncertainty concerning sales revenues declined in February for the third consecutive month. In contrast, uncertainty over employment prospects rose reflecting the persistent difficulty of filling job vacancies.
In 2022, the contribution of French foreign trade to GDP growth was one of the most negative in its history (-0.8 percentage points), hindered by deterioration in three areas.
GDP Growth, inflation, interest and exchange rates
The latest economic indicators updated on February 20, 2023 and the coming calendar
