Without falling significantly, confidence indicators for the euro area confirm the current phase of stagnation, which is expected to continue into Q4 2023. According to the flash estimate, the composite PMI edged up by 0.6 points to 47.1 in November, while the European Commission's Economic Sentiment Indicator fell slightly in October, down by 0.1 points to 93.3 (its lowest level in three years). Despite the current deceleration in inflation (from 4.3% y/y in September to 2.9% y/y in October in harmonised terms) and an unemployment rate that is close to its lowest ever (6.5% in September), household confidence is not recovering, against a still difficult backdrop in terms of purchasing power. Retail sales slipped to their lowest level in two-and-a-half years in September: while there was a rebound in food spending (+0.4% q/q in Q3), purchases excluding food and fuel products fell more sharply (-0.5% q/q).
This lack of demand is the factor limiting production most cited in the European Commission quarterly survey in October 2023. Financial constraints are also increasing, but more moderately. Conversely, supply constraints (equipment, labour) are falling.
Preliminary GDP estimates for Q3 2023 indicate a slight contraction of economic activity in the euro area of 0.1% q/q, which will be followed, according to our nowcast, by zero growth in Q4. Based on these first estimate, Ireland, whose GDP is very erratic due to the business activity of multinationals, posted a contraction of 1.8% q/q, and explains much of the decline in the euro area. However, there are contrasting dynamics between the other Member States. The Netherlands (-0.2% q/q) and Austria (-0.6% q/q) experienced a downturn for a second and third quarter running, respectively, while Germany (-0.1% q/q) and Finland (-0.9% q/q) fell back into negative territory. Spain (+0.3% q/q), Belgium (+0.5% q/q) and France (+0.1% q/q) performed better. The latest European Commission forecasts, published on 15 November, report downward revisions of growth for the euro area for 2023 (0.6%, i.e. -0.2pp compared to July forecasts) and 2024 (1.2%, i.e. -0.1pp). Our estimate for 2024, is lower, at 0,8%, mainly due to less positive forecasts for France and Germany.
Guillaume Derrien (completed on 23 November 2023)
