Mixed economic pulses at the end of 2024
GDP figures for Q4 2024 confirm a clear divergence between growth which is sustained in the US (0.6% q/q) or accelerating in China (1.6% q/q), and mixed performances in Europe with a stagnating GDP: -0.2% in Germany, -0.1% in France or stagnation in Italy, compared to +0.8% in Spain. In Japan and the UK, these figures have not yet been published, but our estimates are 0.2% and 0.3% q/q, respectively.
Mixed economic pulses at the beginning of 2025 too
Business climate indicators suggest continuation of growth performance in Q1 2025 in Spain (+0.7%) and the US (0.6%q/q). The outlook is more mixed in Asia, whether in China (1.3% q/q) or Japan (0.1% q/q). In the Eurozone, our nowcast suggests a moderate upturn (0.3%), with a return to modest growth in France (nowcast at 0.1%), and in Germany and Italy (forecasts at 0.1% and 0.2%, respectively), while growth is expected to remain at current levels in the UK (0.3%).
Stable labour markets
There are no significant changes on the labour market in most countries, with unemployment rates remaining low (or almost lower), particularly in the Eurozone, the UK, Japan, and the US, with the resulting wage pressures. However, the extension of a period of low growth is resulting in a deterioration in job creation in several countries, with an increasing impact (or an impact likely to increase) on unemployment, particularly in France or Germany.
Diverging inflation levels
Divergences in terms of inflation remain significant and are expected to widen in 2025. Deflationary trends continue in China. Disinflation is evident but remains uneven in the Eurozone, where core inflation remains rather high, and where gaps between countries are widening (Germany and Spain above the European average). In the US and, to a lesser extent, in the UK, inflation remains well above 2% y/y and disinflation is not expected to continue in 2025. In Japan, despite the beginnings of disinflation, inflation is expected to remain high (2.8% y/y on average in Q4)
Diverging monetary policies too
These divergences are reflected in monetary policy. The Chinese central bank is maintaining an accommodative policy and is expected to ease this policy further in H2. The heterogeneity observed in the Eurozone has meant the ECB has maintained its pace of cuts at 25 bps, a pace also adopted by the BoE, but with longer intervals between cuts because inflation is slightly above the target in the UK. In the US, the Fed has maintained its key rate, a status quo we expect to see throughout the year. The BoJ took another step in its very gradual tightening of monetary conditions in January and is expected to make two further hikes of 25 bps in 2025, according to our forecasts.
Article completed on 07 February 2025
