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.
Since 2022, the French government has reduced several types of production tax. This is the case for tax based on corporate value added (CVAE), which was reduced gradually in 2021 and 2023, and will continue to be phased out in 2024, this process coming to an end in 2027.
Canada has experienced sluggish economic growth in 2023, owing to rising prices and higher credit costs, which had a direct impact on the investment and consumption channels, despite the benefits of the country’s growing population. Furthermore, one cannot expect a significant improvement over the short run. Canadian households are amongst the most indebted in the world. Admittedly, their level of net wealth contributes to offset this fact, but it still implies an increased vulnerability against the backdrop of monetary tightening and a deteriorating labour market
In the US, the latest Survey of Professional Forecasters (SPF) of the Federal Reserve Bank of Philadelphia paints a rather upbeat picture of the economic outlook. A similar survey of the ECB points towards a gradual pickup in growth this year. In both cases, the level of disagreement is low. This provides reasons to be hopeful about the economic outlook. However, the alternative scenarios are predominantly negative for growth and inflation, and some have totally different implications for the evolution of bond yields. This would mean that as time goes by and the likelihood of the different alternative scenarios evolves, bond yield volatility could be high.
In the United States, economic policy uncertainty, based on media coverage, fell significantly in February, following a rebound in January. The index fell from 124 to 97, the lowest level since July 2023, when the policy rates were last raised. With US growth and the labour market continuing to hold up well, the economic outlook appears to be brighter and less uncertain. This gives greater credit to the scenario of a soft landing for the economy, and greater comfort for the Fed’s cautious stance and to take its time before cutting rates.
GDP growth, inflation, exchange and interest rates.
French growth has recorded a stop-and-go cycle during the last 4 years. While the Covid period initiated this phenomenon in response to successive lockdowns and reopenings of the economy, subsequent shocks generated precautionary behaviour: lowering inventories and sudden stop of growth at the time of the shock (energy crisis, impact of rising interest rates), and then inventories rebuilding and growth recovery thereafter. This phenomenon could contribute to growth during the course of 2024, after the stagnation recorded in the second half of 2023.
In February, the S&P Global Composite PMI improved for the fourth consecutive month (+0.3 points), to 52.1, its highest level since June 2023. This is a fairly clearly encouraging signal for Q1 global growth, especially as this improvement is being driven both by the manufacturing and services sectors. In February, the global PMI index in these two sectors reached its highest level since August 2022 and July 2023, at 50.3 and 52.4 respectively.
GDP growth, inflation, interest and exchange rates.
The economic situation in January and February highlights the uncertainties surrounding 2024 with, on the positive side, improvements in the business climate in several countries and resilient labour markets (Europe) or labour markets remaining dynamic (US). Combined with a disinflation trajectory not yet spreading to all sectors (services in particular), all these factors are tending to defer expectations of rate cuts.
With zero growth in the last quarter of 2023, the Eurozone has narrowly escaped recession, but economic activity is still hanging by a thread. Over 2023 as a whole, the increase in real GDP just reached 0.5%, and the carry-over effect for 2024 is null, as a result of a second half that was even weaker than the first one. Nevertheless, our Nowcast currently indicates growth of 0.3% q/q in Q1 2024, which is higher than our December forecast.
Business climate and consumer confidence indices remained stable at a low level in February, highlighting Germany's limited economic impulse in Q1. According to our forecasts, GDP growth should be zero, after a contraction of 0.3% q/q in Q4: growth without momentum (for the time being) but also without a carryover effect (-0.2% after Q4 2023).
The last time growth was significant (in Q2 2023, with +0.6% q/q), this was explained by significant restocking (contribution of 0.5 points, after a contribution of -0.4 points in the previous quarter). A similar restocking trend could occur in Q1 2024, following a negative contribution of inventories in Q4 2023 (-0.7 points). However, this very negative figure suggests that demand in Q1 is particularly subdued, and is not expected to contribute to growth (if growth were to prove positive).
January's business confidence surveys recovered in Italy: the composite PMI index rose 2.1 points and now stands at 50.7. This improvement was driven by services, for which the PMI returned to the expansion zone after six months in contraction territory (+1.4 points, at 51.2). The companies surveyed are now reporting an increase in upcoming new business (52.5; +4.4 points), bringing employment with it (51.2). Meanwhile, the deterioration in the manufacturing sector, observed since April 2023, is continuing to slow, with the associated PMI index gaining 3.2 points in January, standing at 48.5.
January's business confidence surveys showed signs of improvement. The composite PMI index points to an expansion in activity (51.5), driven by the ongoing solid performance of the services sector (52.1). The manufacturing sector is also seemingly enjoying a bit more tailwind at the start of this year. After ten months of contraction, the associated PMI is showing signs of recovery (49.2; +3.1 points), with Spanish companies reporting a lesser deterioration of all sub-indices, with the exception of the sub-index relating to suppliers' delivery times (44.5; -3.5 points).
The start of 2024 has seen an unexpectedly strong non-farm payrolls gain, hitting 353,000 in January (+30,000 m/m) – the highest figure seen for more than a year. In addition, this figure was coupled with a significant upward revision to the December data (330,000 jobs created, compared to the initial figure of 216,000). At the same time, the unemployment (+3.7%) and participation (+62.5%) rates remained stable.
The economic situation in the UK continued to deteriorate in Q4 2023. Real GDP contracted 0.3% q/q, after falling 0.1% q/q in Q3. Although economic activity remained marginally in positive territory for 2023 as a whole (with 0.1% growth), it deteriorated throughout the year, resulting in a negative carry-over effect for 2024. The growth outlook for 2024 is even more unfavourable, as economic activity is expected to stagnate in H1 before a sluggish recovery from summer onwards.
Japan entered a technical recession in H2 2023. The first estimate of Q4 GDP indicates a modest contraction of -0.1% q/q following a more significant downturn of -0.8% q/q in the previous quarter. More symbolically, Japan lost its ranking as the world's third largest economy (in nominal GDP) to Germany. Nevertheless, the strength of economic activity in H1 2023 had given the Japanese economy a significant growth carry-over, allowing the average annual growth rate to reach +1.9% for the year (compared to +0.9% in 2022).
There is a broad consensus amongst forecasters that Eurozone quarterly growth in real GDP will gradually pick up over the year on the back of a further decline of inflation, cuts in official interest rates, investments in the energy transition and those related to NextGeneration EU. Foreign trade may also play a role. Survey data of the European Commission and S&P Global have improved since the autumn of last year but their level remains below the historical average. Based on historical relationships, their positive momentum -recent observations are better than those 3 months ago- increases the likelihood that GDP growth in the first quarter will be better than in the final quarter of 2023.
Tunisia is going through a serious economic crisis. Real GDP contracted again in the fourth quarter, falling by 0.2% year-on-year after a decline of0.3% in the previous quarter. Estimates suggest that full-year growth was 0.4%, its lowest level for more than a decade (barring the Covid crisis).
Despite the positive momentum it would be premature to say that the recovery has started in the Eurozone, but at least we are moving in the right direction.
The global composite PMI rose for the third consecutive month in January (up to 51.8 from 51 in December), reaching its highest level since June 2023. All sectors have contributed to this improvement in global activity. In January, the global manufacturing and services PMIs hit their highest levels since August 2022 and July 2023, respectively.
