MacroEconomic Bulletin - May 2022



China's zero COVID-19 policy poses an increasing risk. The negative effects of China's massive confinements are beginning to impact its economy, which could be translated to other countries mainly through a further increase in prices. In this sense, according to Bloomberg Economics festimates, Chinese GDP could have contracted (-0.68% yoy) during last April, being the first setback since February 2020. Moreover, rising inflation is becoming a risk for the Chinese economy, a country that was not yet affected by this phenomenon. China’s overall rate rose 2.1% yoy in April 2022 (from the 1.5% flash estimate in March), recording its major increase in the last months. According to the Chinese authorities, inflationary pressures are mainly caused by both the increase in the price of raw materials, and the restrictions imposed due to the COVID-19 outbreaks. This situation poses a further downside risk to the global recovery, as China could become another source of inflation, a country that traditionally exports deflation. Likewise, confinements are again causing congestion at ports reaching levels similar to those of the 2021 summer, which could lead to a further collapse of the maritime network, causing further disruption to supply chains.

Economic growth slows down in the Eurozone. Despite average growth remained positive in the first quarter of the year, signs of stagnation are emerging in the eurozone (0.2% qoq, Eurostat 1st release). By countries, the majority grew below expectations, with Italy presenting a retraction (-0.2% qoq), however, Germany remained stable with a quarter-on-quarter growth of 1%. These figures already reflect the effects of the international conflict on the economy, where the favorable start of the year could not palliate the downward effects of March. Thus, increasing the expectations of a contraction for the second quarter in some countries, as it would be even more affected by the current situation, to which new pressures are added –as higher supply chain pressures due to China’s lockdowns. Following the downward pressures looming over 2022, the European Commission has revised down the economic growth of most EU Member States in the Spring 2022 forecast. In this regard, the Commission forecasts a growth of 2.7% yoy for the Eurozone (4.3% previous forecast), being the countries with the largest revision the ones with a higher dependence on Russia and Ukraine. Moreover, it is also noteworthy the revision of German growth (3 pps) to 1.6% yoy (4.6% previous), as well as the Italian (2.4% yoy from 4.3%). Nonetheless, the European Commission has already announced the extension of the escape clause to 2023, which could lead to further fiscal impulses in some countries, promoting growth through public consumption.

Eurozone PMIs: services sector palliates the slowdown in manufacturing industry. The easing of health restrictions continues to favorably influence economies, especially those where tourism is more relevant, counteracting the slowdown in the industrial sector resulting from price increases and supply disruptions. In this sense, after the decline recorded in March 2022, the April 2022 composite PMI of the Euro area increased by 0.9 points (55.8 PMI), driven by an increase in the services sector PMI, as the manufacturing sector index slowed down. Likewise, the May Flash Estimate reflects a similar trend, with a more pronounced loss of momentum in the manufacturing industry, although all sectors have declined. Nevertheless, the composite PMI still remains in an economic expansion zone (54.9 points).

Monetary policy. On May 4, the Fed Board and Federal Open Market Committee (FOMC) decided to raise the target range for the federal funds rate from 0.25-0.5% to 0.75-1% and anticipates that ‘ongoing increases in the target range will be appropriate’ due to the new scenario which emerged from the Russian invasion of Ukraine and its highly uncertain implications for the U.S. In addition, in this meeting the FOMC decided to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities on June 1, as anticipated at the last meeting on March 16. On the other hand, on May 5, the Bank of England Monetary Policy Committee voted in favor to raise a quarter-point its interest rates for the fourth time since December, from 0.75% to 1%, to face the deteriorating UK’s growth outlook and its increasing inflation, which stood at 7.0% in March. As for the European Central Bank, the institution published a post on the ECB's monetary policy blog in which Christine Lagarde highlighted the possibility of moving from negative rates at the end of the third quarter, albeit at a moderate pace. In this regard, this statement points to a gradual increase in interest rates, which could materialize at the next ECB meeting in July, as well as in September’s meeting.


High inflation continues to be one of the main challenges the Spanish economy is currently facing. The overall annual rate of the CPI stood at 8.3% in April 2022, below than March’s CPI (9.8%), registering the first decline from the previous month since January 2021 due to the moderation of energy prices in April. Likewise, the Industrial Price Index registered a similar trend, moderating slightly, although it remains at historical levels (45.0% yoy). The largest contributor continues to be energy, although a generalized rise in some crops-related products stands out due to greater congestions in global food supply chains. In addition, the rise in prices affected the foreign sector in the first three months of the year, as the trade deficit increased fivefold, with the energy deficit rising from 4,833 million euros to 11,052 million. Thus, we do not expect the foreign sector to return to the surplus levels seen prior to the pandemic during 2022. As for the labor market, it worsened slightly during the first quarter of 2022, yet in line with the effects of seasonal employment, with the unemployment rate standing at 13.6% (13.3% Q4 2021). This scenario of higher uncertainty and prices, coupled with a lower-than-expected growth in the first quarter, has led to a general downward revision of Spain's economic growth. In this regard, the European Commission has reportedly lowered its annual growth forecast to 4.0% (5.5% previously). Moreover, EthiFinance Ratings has also considered the current downside risks, revising our growth forecasts to 4.4% yoy (4.8% previous forecast), while stressing the significant role of the tourism sector during the third quarter, currently free from COVID-19 restrictions for the first time. On this basis, tourism continued to evolve favorably in April, recording 25.1 million overnight stays, up from 4.1 million in the same month of 2021. On the other hand, public debt increased last March, approaching the all-time high of 118% of GDP (117.7% in March). This fact could pose a risk to public finances if lower-than-expected GDP growth materializes -due to the denominator effect- to which would be coupled with the increase in interest rates.


Following the first estimate of GDP growth (0.0% quarter-on-quarter), the latest data published confirms the signs of stagnation of the French economy during the first quarter of the year. On this basis, consumption fell sharply with a total quarter-on-quarter decline of 1.7%. Moreover, tourism reversed its recovery trend, with tourist collective accommodation being 11.3% below the levels of the same quarter of 2019 (8.6% in Q4 2021). Nevertheless, the labor market remained stable during the same period, with the unemployment rate remaining at around 7.3% of the labor force (7.4% in the previous quarter), the lowest level since the 2008 financial crisis. Regarding the second quarter of the year, the first leading indicators point to a further slowdown in consumption during April, while the business climate stabilized in May. In this sense, consumer confidence continued to decline to levels like those observed during the yellow vests’ protests or the pandemic outbreak. With much of the worsening of expectations due to the continued rise in prices, which is expected to continue. On the supply side, the business climate remained stable at 106 points, with service sector and retail trade improving expectations, whereas in manufacturing, construction and wholesale trade worsened, caused by an increase in delivery delays and prices, although all sectors remained at expansionary levels. In addition, inflation continued to rise in April (4.8% yoy), although presenting a more moderate monthly change (0.4% compared to 1.4% in March). Excluding energy, food and services are the components which increased the most, coinciding with the latest data on agricultural producer prices. Accordingly, in March, agricultural producer prices rose sharply (26.8% yoy compared to 14.5% in February), mainly due to the increase in the prices of cereals and some oils -such as rapeseed oil-, as both Russia and Ukraine were among the main exporters. Therefore, and as no improvement in the current international situation is foreseen, we expect the food component to continue to exert an upward pressure on prices.


Contrary to other Eurozone countries, the Portuguese economy evolved favorably during the first quarter of 2022 (flash estimate), presenting a quarter-on-quarter growth of 2.6% (11.9% yoy). On this basis, Portugal surpassed its 2019 GDP levels, consolidating the recovery in the first quarter of the year, to which both domestic and external demand contributed positively, highlighting the evolution of the tourism sector. Likewise, the labor market improved in the first three months of the year, registering an increase in the employed population (+0.4% qoq), as well as a decrease in the unemployment rate, which stood at 5.9% (-0.4 pp compared to the last quarter of 2021). As for the second quarter, published data point to a continuation of the positive trend in the Portuguese economy. In this regard, expectations improved during April, both on the demand side -increasing the consumer confidence index- and on the supply side -with an upturn in the business climate index- after the drop recorded in March following Russia's invasion of Ukraine. Moreover, data regarding operations carried out in the ATM network -a proxy for consumption- show a similar progression, increasing by 29.9% yoy in March and 26.1% in April. As a result, Portugal is one of the few economies for which the European Commission has revised upwards its growth forecast for 2022, from 5.3% to 5.8% yoy. A more controlled electricity market, the greater weight of the service sector as well as Its lower direct dependence on Russia and Ukraine, are some of the factors that are sustaining Portuguese economic growth in 2022. Nevertheless, inflation remains one of the main risks for the Portuguese economy. In contrast to the easing trend in prices observed in other economies during April, inflation continued to soar in Portugal. In this regard, inflation was 7.2% yoy (5.3% in March), with a core inflation rate of 5.0% (3.8% in March). Although monthly variation was lower than in March (2.2% compared to 2.5% in March). Similarly, Industrial prices remained high in April 2022 (24.6% yoy), with no variation compared to the previous month, pointing to a moderation of the trend observed in March. Meanwhile, energy and raw materials continue to be the main contributors to the increase in prices, with the index excluding them standing at 9.4%. Notwithstanding, it would be above that of March (7.9%), which suggests that the price increase in March caused by the outbreak of the conflict between Russia and Ukraine is having a knock-on effect on the rest of industrial goods.