MacroEconomic Bulletin - February 2023



Expectations start to improve, except in the United States, according to the PMIs.
Eurozone PMIs report an easing of inflationary pressures and more stable supply chain
conditions, which has mainly favored the industrial sector, although they remain in the
contraction zone of activity. Thus, the composite PMI stood at 49.3 (47.8 November),
manufacturing at 47.8 (47.1) and services at 49.8 (48.5). Likewise, China's composite PMI
showed an improvement of +1.3 points in December to 48.3, favored by the withdrawal of
restrictive measures, albeit this improvement was limited by the increase in COVID-19 cases.
Nonetheless, the US trend is negative, presenting a decline of -1.8 points to 44.6, driven by
both manufacturing and services sector declines.

The U.S. CPI continues the downward trend that began in July 2022. US inflation stood at
+6.5% yoy in December (+7.2% in November). Moreover, inflation fell for the first time month-
on-month since June 2020 (-0.1%). By components, energy stands out for its downward
influence, while it was the less volatile items that contributed most to inflation -accounting for 4.5
points of general inflation-. Therefore, average inflation in 2022 increased to +8.0% yoy, up from
+4.7% in 2021. For this year, the Consensus expects inflation to decrease, but to remain at high
levels, around 4.1%. The labor market, on the other hand, remained stable at the beginning of
this year, with a maintenance of unemployment benefit claims, after the fall observed at the end
of December (-17,000 claims).

China grew in 2022 at the slowest pace since the Cultural Revolution of the 70s. The
Chinese economy recorded a 0% quarter-on-quarter growth during the last quarter of the year.
Thus, the country's GDP expanded by +3% yoy during the year, the slowest since the Cultural
Revolution of the 1970s -without taking into account 2020 where GDP grew by +2.2%-. The
high restrictions derived from the country's zero Covid-19 policy, and the crisis in the real estate
sector -one of its main growth drivers- are some of the factors that have influenced the
slowdown of its economy. Added to this are the latest demographic data released this week,
which presented a drop in population for the first time in six decades. However, the outlook for
this year is more favorable, with growth estimated by the Bloomberg consensus at +4.8% yoy,
albeit below previous levels.


December inflation is slightly revised downwards to +5.7% yoy versus +5.8% initially estimated,
whereas core inflation is revised upwards, from +6.9% to +7.0%. Transport and housing -due to
heating and electricity- stand out for their negative influence due to the slight normalization of
prices in the energy market. However, food continues to push upwards, being the most
influential component during December 2022. Thus, average inflation in 2022 stood at +8.4%
yoy in 2022, higher than the +3.1% recorded in 2021, highlighting the increase in core inflation -
it increased from +0.8% to +5.2%- with a pass-through of the rise in prices of the most volatile
goods to those with lower volatility. For this year, a slight decrease is expected -around +4%
yoy- but it will remain above the target level. Besides, we point out this change is highly linked
to conjunctural causes, which could revert in the future given the end of the containment
measures (gasoline price and transport grants, etc).

In addition, December PMIs point to a resilience of the economy during the last month of the
year, improving the outlook compared to November. In this sense, Manufacturing PMI, although
remaining below the line of declining activity, presented an improvement (46.4 vs. 45.7 in
November), mainly due to a change in expectations and a softening of supply chain constraints.
The Service PMI, meanwhile, continued in the expansion zone (51.6 points vs. 51.2), with

activity registering its strongest growth rate since last July. Nevertheless, the Service PMI was
not enough to offset the contraction in manufacturing activity, with the composite PMI standing
at 49.9 points, one of the highest in the Eurozone.

Notwithstanding, the labor market maintains the slowdown trend observed since the end of the
third quarter, with a decrease of more than 8,000 enrolled workers in December in seasonally
adjusted terms. Nevertheless, the balance for the year is positive, with an all-time record
number of enrolled workers, at around 20.3 million contributors, representing an increase of
more than 400,000 workers. Likewise, the number of unemployed persons has shown a
downward trend in 2022, to below levels not seen since 2007.


Inflation continued its downward trend in December (+5.9% yoy vs. 6.2% in November), driven
by the moderation in energy prices and, to a lesser extent, in services. As for food prices, these
maintained the pace of increases of the previous month, while manufacturing goods recorded
an appreciation. On a month-on-month basis, prices decreased by -0.1% compared to +0.3 in
November. Therefore, French inflation stood at +5.9% yoy in 2022, one of the lowest in the
Eurozone, favored by the French government's containment measures. Similar to other
economies, inflation is expected to decrease next year, although maintaining high levels -
+4.4% yoy according to the European Commission-.

On the other hand, in December 2022, consumer confidence remained moderately stable on
the levels presented since June 2022 -around 82 points- with a slight decrease after last
month's rebound. Nevertheless, consumers remain at pessimistic levels far from the long-term
average of 100 points. Furthermore, consumers point to a worsening of their financial situation
and standard of living, mainly due to rising prices, which is weighing on intentions to make
larger purchases in the short term. On the supply side, expectations were stable and slightly
optimistic (around 102 points). By sector, all sectors held steady except retail trade, which for
the first time since summer surpassed the pessimistic outlook.

In addition, although the PMIs still reflect a contraction in activity in December, they point to a
less pronounced pace. In this sense, the manufacturing PMI improved to 49.2 points (48.3 in
November), marked by an improvement in expectations, and with the lowest rates of decline in
new orders since June. Nevertheless, the services PMI continues in contraction zone, albeit
slightly improving (49.5 vs. 49.3), signaling the worst quarter for the French services sector
since the beginning of 2021, highly influenced by lower demand given the decrease in
households' disposable income. Thus, the composite PMI was still in the contraction zone in
December (49.1), although above the levels reported in November (48.7).


December 2022 inflation rate is confirmed, which decreased slightly to +9.6% yoy (+9.9% in
November), although core inflation maintained its upward trend (+7.3% vs. +7.2%). This
confirms the average inflation figure for 2022, which was set at +7.8% yoy, significantly above
the +1.3% in 2021. As for Portugal, the increase in energy prices has materialized mainly in
2022, presenting an electricity market structure that managed to cushion the 2021 rise. In
addition, the increase in food prices due to problems in the supply chains was aggravated by
the severe drought that the country suffered during the 2022 summer. For this year, inflation is
expected to maintain its downward trend, albeit at high levels -around +5.8% yoy according to
the European Commission- favored by the normalization of energy and food prices, although
the price of services is expected to continue to rise, influenced by wage adjustments.

On the other hand, other short-term indicators continue to point to the slowdown of the economy
in the last quarter of the year. The Industrial Production Index continued to contract in
November, although at a slower pace than in the previous month (-0.3% yoy vs -1.9% yoy), with
the contraction of the manufacturing industry being slightly more pronounced (-0.4% yoy).
Likewise, the labor market is starting to worsen, with increases in the unemployed population in
November, with the unemployment rate rising to 6.4% (6.0% in October). Nevertheless, and
aligned with the improvement of expectations in the Eurozone, the indicators of expectations
remained stable in December. On the demand side, consumer confidence interrupted the
negative trend of recent months, although it still remained in pessimistic territory. On the supply
side, the economic climate follows a similar trend, presenting a slight improvement after the
decreasing trend of the last months. This upturn was due to improved expectations in
manufacturing and trade, while expectations in construction and services worsened.