Outlook for GDP growth, inflation, interest rates and exchange rates
The latest economic indicators updated on February 13 2023 and the coming calendar
"España Digital 2026", “Estrategia Española de Ciencia, Tecnología e Innovación 2021–2027” and “España 2050”: since the pandemic, there has been no lack of structural programmes designed to increase the competitiveness of the Spanish economy. The Spanish Government is right: the country's fundamental problems, which contributed to the 2011 crisis, persist today. Spain has one of the lowest levels of private and public investment and one of the lowest stocks per capita of productive capital in Europe. In addition, the country still suffers from a significant productivity deficit when compared to its major European partners, a deficit which it is struggling to make up as it is intrinsically linked to its low capital stock
While the US labour market has been very tight since the 2021 economic recovery, first signs of a slowdown are emerging. The extent of this slowdown will be key to ensuring the expected disinflation and the gradual return to price stability.
Tunisia is raising concern. The CDS premium on 5-year sovereign bonds has risen from less than 730 basis points (bps) at the end of November to 1072 bps currently. At this level, the country is joining the category of emerging issuers considered to be close to default by investors. There are many reasons for this.
The latest economic indicators updated on February 6 2023 and the coming calendar
According to our estimate, the trade deficit (goods) reached almost EUR 160 billion in 2022, after 85 billion in 2021. This sharp deterioration is mainly due to the rise in the prices of French energy imports, including oil. However, it seems that the balance on manufactured goods has also continued to deteriorate, including when viewed in terms of volume.
With the war in UKraine, the European Union (EU) has had to find alternative sources of energy supply in emergency and at a significant cost.
GDP growth surprisingly increased in the 4th quarter, reaching +0.1% q/q (after +0.2% q/q in the 3rd quarter), compared with -0.2% based on our forecast. Corporate investment was one of the factors behind this relative resilience, with a further rise of 1.2% q/q (having already grown by 3.8% q/q in the 3rd quarter). Conversely, consumer spending was undoubtedly the weak link in demand, with a drop of 0.9% q/q.
On an annualised basis, US GDP increased 2.9% in the fourth quarter compared to the third. This healthy increase implies only a mild quarterly slowdown. The result was also better than the consensus expectation. However, a detailed analysis shows causes for concern. About half of the increase in GDP reflects inventory rebuilding, although this comes after a negative contribution in the previous two quarters. Personal consumption expenditures have also contributed approximately half of the GDP increase, but investments in structures had a negligible impact and residential investments continue to act as a drag, suffering from high mortgage rates. Moreover, in the final quarter of 2022, GDP only grew 1.0% versus the same quarter of 2021
Some discrepancies have become apparent in the most recent surveys. Uncertainty about US economic policy, based on media coverage, has continued on an upward trend since mid-April 2021, on the back of the tightening of monetary policy by the Federal Reserve. The European Commission's economic uncertainty index fell slightly, due to less uncertainty in the various sectors of activity, with the exception of households.
The latest economic indicators updated on January 30 2023 and the coming calendar
Surprisingly, according to European Commission surveys such as the Standard Poor's Global PMIs, the business climate improved quite significantly in the Eurozone despite the accumulation of setbacks. The improvement was evident in all activity sectors as well as in relation to advanced components (for new orders). However, the level of the surveys remains relatively depressed.
Business climate indicators in recent months have been affected by the significant impact of the energy shock, as well as by fears that this shock will get worse during the winter. The difficulties linked to the international context (before China’s economy opened up again) have also hurt the German economy.
The gradual deterioration in the business climate suggests a slowdown in French growth, which may even have fallen into negative territory in the 4th quarter, a contraction which would be consistent with the decline in the balance of opinions about production in the economic survey in industry.
The obstacles which the Italian economy is facing remain significant. Unlike its European neighbours, inflation in Italy is not slowing down. It fell only slightly in December, from 12.6% to 12.3%, and remains the highest in Western Europe. While the Italian labour market continues to recover given the fall in the unemployment rate, this indicator masks underlying dynamics which are less positive for economic growth.
Most of the measures to freeze energy prices will be maintained in 2023 and the Prime Minister Pedro Sanchez unveiled a new budget of EUR 10 bn intended to support households. This will help to contain food price inflation and counteract the upward pressure on prices caused by the end of the fuel rebate since 1st January 2023.
According to January’s Beige Book published by the Federal Reserve (Fed), economic activity has remained relatively unchanged in all 12 districts since the previous report. However, activity is slowing in the manufacturing sector, despite the mitigation of disruptions in the supply chain. The decline in net real disposable income, combined with higher borrowing costs, is expected to moderate future consumer spending.
According to the latest business surveys, economic activity in the UK continues to contract. According to the Confederation of British Industry (CBI), confidence balances in the industrial and distributive trades sectors (retail and wholesale sales) are clearly deteriorating while rebounding slightly in the services sector
Inflation continues to weigh on consumer confidence, while a large proportion of Japanese households will see further increases in the price of electricity next March, with most suppliers having announced price increases from this month.
The state of the labour market occupies a central role in the analysis of the business cycle. Historically, the percentage of months over the past 12 months with nonfarm payrolls below the 200K threshold increases in the run-up to a recession. Today, this indicator stands at 0 percent. Although there have been many false signals, a significant increase in this percentage calls for vigilance, necessitating closer monitoring of other data as well to assess the risk of recession. An alternative approach consists of making the link between monthly payrolls and the unemployment rate. However, given the latest data on job creations, a swift increase in the unemployment rate sufficient to trigger a recession signal seems unlikely
In Q4 2022, China’s economic growth slowed to 2.9% year-on-year (y/y) from 3.9% in Q3. In quarter-on-quarter terms, activity stagnated. Our Pulse below highlights a broad-based weakening in economic activity during the last quarter of 2022.
