MacroEconomic Bulletin - December 2022

MacroEconomic Bulletin - December 2022



China reopens its borders, improving growth expectations for next year. After confirming the relaxation of anti-COVID-19 measures, the Chinese government has announced the reopening of the country for foreign visitors. Both of these factors have led to an improvement in the country's growth expectations, with the Bloomberg consensus standing at +4.8% yoy for 2023, compared to +3.0% for this year. However, these advances could entail an ambiguous effect on the global economy. On the one hand, China could position itself as the growth axis for next year while other economies tend to slow down due to the current economic environment. On the other hand, its effect on supply chains, with this loosening being a favorable aspect for them, as they would not be as affected by confinements as in other occasions. Nevertheless, the effect on prices is uncertain, since the country's reactivation could lead to greater pressures on the supply of some raw materials -such as oil- interrupting the easing trend observed in recent months.

The U.S. economy is holding up, but further FED rate hikes are expected next year. The upward revision of U.S. GDP growth in the third quarter of the year has surprised the consensus, standing at +3.2% year-on-year (+2.8% Flash estimate). Likewise, the labor market, although presenting a negative outlook with the monthly increase in unemployment claims, is still robust and continues to present better observed figures than those estimated. Furthermore, inflation continues to moderate with price growth of +5.5% yoy in November, down from +6.1% in October. Thus, we expect the Fed to maintain rate hikes over next year, albeit it has already relatively relaxed the pace of hikes, with a 50 basis point increase at its last meeting in December. Nonetheless, we consider that the FED will stick to this more relaxed pace of rate increases, as we expect the main effects of the tightening of financing conditions to be observed in the coming year.

ECB softens rate increases, but points to stickier inflation. At its December meeting, the European Central Bank was in line with expectations, slowing the pace of interest rate hikes, raising rates by 50 basis points. However, there was a change in the tone of its discourse, reinforcing its belief that rate hikes will be significant, albeit sustained, and will reach tightening levels. This discourse is in line with its new forecasts for the coming years, where the ECB has revised upwards its inflation projections by around 1 pp, to +6.3% in 2023 and +3.4% in 2024. This points to a view by the ECB that inflationary pressures will remain elevated in 2023 and 2024, so no significant easing of financing conditions can be expected during that period.


The INE has revised quarter-over-quarter growth for the third quarter down slightly to +0.1% (+0.2% Flash estimate), although this correction is mainly due to the upward adjustment of growth in the first half of the year. In addition, the INE has revised year-on-year growth upwards to +4.4% (+3.8% previously). All in all, the overall assessment of this adjustment is positive which, added to the resilience shown in the fourth quarter -although with some signs of a slowdown- could indicate that the country will close with a growth rate above +4.0% and more in line with +5.0%.

The CPI maintained the moderation trend in December (+5.8% vs. +6.8% in November; Flash estimate), highlighting the downward influence of energy and transport prices. However, the evolution of core inflation is of particular concern, with an increase to +6.9% (+6.3% in November), which points to a stickier inflation, with a pass-through of the rise in prices of the most volatile goods to those with lower volatility. The Industrial Price Index, offers a similar outlook, maintaining a downward trend, with a growth of +20.7% in November (+25.0% in October), highlighting the downward influence of energy and intermediate goods. Nevertheless, note the high uncertainty surrounding the evolution of prices in 2023, which, albeit we expect to moderate due to the normalization of certain supply chains and as it is highly influenced by the statistical effect, is highly subject to the evolution of the energy crisis during the winter, the behavior of fuel prices -limited by certain subsidies, ending next year-. Moreover, the evolution of food prices, with an increasingly upward influence on inflation, is positioned as one of the main risks to its evolution in 2023, although a package of measures has been approved to mitigate it, it is still premature to determine its effect.


The INSEE estimates a slight decline in GDP for the fourth quarter of 2022, expected to be around -0.2% qoq, compared to the neutral growth initially estimated. However, the statistics office does not point to a recession, but rather to a "cooling off" of activity during this quarter, which they expect to be reversed at the beginning of next year. In addition, they point out that this drop in activity is mainly explained by the fall in investment, although consumption also has a downward effect. All in all, France is expected to close the year with a GDP growth of +2.5%, compared to +6.8% in 2021, a year influenced by the recovery after COVID-19.

Inflation holds stable in November (+6.2% yoy), favoured by the moderation of energy and fuel prices, while the price of food and manufactured goods increased as well. Nevertheless, core inflation maintains an upward trend, with an increase to +5.3% yoy (+5.0% in October). As for December, data is still not available, but we do not expect a significant drop in CPI, while core inflation is expected to remain slightly increasing. On the other hand, the Industrial Price Index continues to ease in November, to +18.5% yoy (+21.4% in October), helped by the easing of oil and some food prices. Overall, we expect inflation to remain elevated at the beginning of 2023, albeit on a downward trend to around +4.5%. However, we highlight the high uncertainty about this scenario due to the junctural factors that are fueling inflation, although for the moment the country has shown greater containment of the pass-through effects of higher electricity prices to consumers, resulting in more moderate average inflation rates than in other Eurozone economies.


Price increases continue to ease, with CPI decreasing to +9.6% in December (Flash estimate; 9.9% in November). This decline is mainly due to the moderation of energy and food prices, while those with lower volatility continue to rise, with core inflation at +7.3% (7.2% in November). Thus, Portugal's average inflation rate during 2022 would stand at 7.8% yoy.

On the other hand, one of the most noteworthy aspects of Portugal this year has been the fiscal adjustment. In this regard, the Portuguese INE has placed the central government surplus at 1.1% of GDP in the third quarter. This figure contrasts with those presented in other economies, although a deterioration is expected in the final part of the year, which the European Commission places at -1.9% of GDP by 2022. This correction of the deficit is driven by the adjustment of some imbalances in public accounts, in addition to the increase in revenues due to inflation, and the growth enhancement in 2022. In this sense, we also highlight the dynamism of the Portuguese economy during 2022, with the tourist sector playing a major role as the backbone of the recovery, and with inflation presenting a slower pace, affecting especially from the second half of the year onwards. Thus, the Portuguese economy will close 2022 with a GDP growth between +6.0% and +7.0%, although the latest indicators point to a slowdown at the end of the year, which will be maintained during 2023, resulting in an estimated growth of around +1.0%.