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.
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
Near real-time GDP forecasting ("nowcast") models are commonly used by economic analysts who monitor developments in GDP growth on a daily basis before the publication of quarterly national accounts. These models enable an estimate of GDP growth based on indicators that have already been published at the time of forecasting.
As we enter 2023, the economies of the major OECD countries continue to show signs of resilience.
In January 2023, according to S&P Global PMI data, the business climate continued to improve for the third month in a row, bringing the composite index just above the 50-point expansion mark for the first time since June 2022. This recovery applies to both the manufacturing sector and services, and it is good news. We regard it as a sign of relief following over-pessimism at the end of 2022 fuelled by fears about energy supply and soaring prices. A relapse cannot be ruled out.
Business climate indicators show relative improvement (for example, the IFO rose from 84.3 in September 2022 to 91.1 in February 2023), attesting to better than expected business activity, particularly as fears of a worsening energy crisis did not materialise. However, these indicators are still below normal, in line with negative growth in Q4.
According to Insee, the business climate in the French manufacturing industry was stable over the last few months. Deterioration was seen in services, albeit gradual, with the index sliding from 107 in August to 104 in December, before climbing back up to 106 in February. This picture is in keeping with a slower pace of growth, while avoiding recession.
Italy’s job market is taking longer to recover than in neighbouring countries. However, employment is close to topping the peak reached in June 2019, with a gap of just 7,000 jobs in December 2022. The employment rate (15 to 64-year-olds) has reached a new record of 60.5%, while unemployment remains stable at 7.8%. Youth unemployment (15 to 24-year-olds) is at its lowest since September 2008.
The improved business climate points to a risk of an upwards revision in our current estimate of contraction in Spain’s GDP in Q1 2023. The composite PMI topped the 50-point threshold in January at 51.6, five months after slipping below this level. This rebound can be attributed to services (52.7), while further contraction was seen in manufacturing activity (48.4). While manufacturing production increased by 0.8% m/m in December and 2.8% in 2022, it has only just closed the gap relative to 2019.
Signs from the ISM business climate surveys were contrasting in January, with a further decline in the manufacturing sector index, going deeper into the contraction zone at 47.4, while the non-manufacturing sector made a strong rebound to 55.2, cancelling out almost its entire December fall.
