MacroEconomic Bulletin - Mid March 2023



Eurozone growth in Q4 2022 revised downward, falling to a contraction. Eurostat has revised for the third time the growth of the euro zone as a whole for the fourth quarter of the year, presenting a slight contraction (+0.1% yoy in previous estimates), this revision has been given mainly by the downward revision of Germanys’ GDP growth, which recorded a fall of -0.4% qoq, compared to the first estimate of -0.2%, which was caused by a contraction both in investment and consumption.

The 50 bps hike announced yesterday by the ECB comes as no surprise, given that the ECB's mandate in this regard is clear, and inflation still from the 2% target. In this sense, we should not forget that the ECB's main mandate is to monitor inflation, and the data recently published in Spain, Germany or France are not favorable, with core inflation continuing to soar due to the cost rise of the shopping basket as well as other basic goods and services for households. Although the financial turbulence in the U.S. and recently in Europe with Credit Suisse seemed to make this possibility less likely, at Ethifinance Ratings we stress that this year's inflation forecasts are still far from the inflation target, so the attitude adopted by the ECB is the most consistent given that the current situation of the financial system is better than that presented prior to the 2008 crisis.

Today, the OECD has revised upwards its growth forecasts for a number of countries. In particular, the 2023 growth forecast for the Eurozone has been upgraded to +0.8% yoy (+0.3%) thanks to the resilience shown by the German economy (estimated growth for this year of +0.3% compared to the -0.3% expected six months earlier) and, above all, to the moderation of inflation expectations. For Spain, the OECD expects a growth of +1.7% for this year (+1.3% the previous forecast) while for France, it places it at +0.7%. Similarly, yesterday the ECB revised upwards its growth expectations for the Eurozone to +1% this year (compared to +0.5% in its December 2022 forecast) with a correction of inflation to +5.3% yoy for 2023 compared to +6.3% in its previous forecast.

The risk of a financial shock has been heightened this week. In this sense, the VIX index (also known as the fear index), which measures volatility, broke its trend and reached its highest level in the last year as a consequence of the fall of Silicon Valley Bank and its contagion to Signature Bank, Western Alliance or First Republic Bank, reviving fears of a contagion similar to the one seen in 2008.

To better understand SVB's fall, during the pandemic, deposits increased sharply (as they were associated with the technology sector). The bank bought bonds to invest them, but with the rise in interest rates, these bonds had significant latent losses. This situation worsened as its depositors' demand for liquidity increased. Therefore, to fulfill these requests, the bank had to sell assets at losses. In addition, the entity tried to carry out a capital issue, but it was not subscribed, which finally provoked the bank run. Although in this case it is not a very large bank, it is true that its contagion to the rest of the financial system has been acute (we are observing it with two more banks), so the White House has assured coverage for deposits over 250,000 dollars and will provide liquidity lines to avoid corporate bankruptcies.


The INE has revised the inflation rate for February, lowering it slightly to +6.0% yoy (+6.1% Flash estimate), albeit keeping the slight increase compared to January (+5.9%). This rise is due to higher food prices continuing to exert a strong pressure, offsetting the effect of the VAT decrease in food, as well as electricity interrupting its downward influence by presenting a higher increase than in February 2022. In addition, core inflation is also revised slightly downwards (+7.6% vs. +7.7%), although it remains at elevated levels, thereby underpinning the alarm of sticky inflation. However, the second-round effects remain contained, with the wage increase agreed in collective agreements for 2023 at 2.9%, below the inflation level registered.

As for the industry, the latest data point to the maintenance of the slowdown trend started in the second half of last year. Thus, the Industrial Production Index recorded a contraction in January 2023 (-0.4% yoy, series corrected for calendar effects), after the slight upturn in activity in December 2022 (+0.7%). This decrease is mainly due to the decline in the production of intermediate goods (-3.8% yoy) and energy (-3.8% yoy), while standing out the deceleration of vehicle manufacturing, which increased by +1.6% yoy, 18 points less than in December, as well as the pharmaceutical industry, whose increase of +17.3% was much lower than in the previous month (+31.5%).

On the other hand, the Consumer Confidence Index decreased by 1.4 points in February, interrupting the improving trend that began three months ago. Although this fall is due to the poorer assessment of both of its components -expectations and the current situation- it is worth noting the notable difference between expectations of the future situation -standing at 84 points- compared to the view of the current situation (59.2 points).


The INSEE has revised February inflation slightly upwards to +6.3% (+6.2% Flash estimate), representing an increase after the figures shown in January (+6.0%). This increase is mainly due to the effect of food prices (14.8% vs. 13.3%), which became the main driver after the slowdown in energy prices (+14.1% vs. +16.3%). Moreover, both manufacturing products and services also showed higher increases, although of a smaller magnitude (+4.7% vs. 4.5% and +3.0% vs. +2.6%). Likewise, core inflation also presented rises (+6.1% yoy versus +5.6% in January).

In addition, the industry presented a year-on-year growth of +2.2% in January 2023, although the vast majority of industries presented higher variations, these were mitigated by the drop in energy production (-11.0% yoy) and food (-1.6%). In contrast, the automotive industry showed a considerable increase (+10.9%), as it was influenced by the easing of supply chains -the shortage of semiconductors- in comparison to last year. Similarly, production also increased in the equipment industry (+3.9%).

On the other hand, the country presented a considerable widening of its current account deficit in 2022, moving from a surplus in 2021 of 9 billion euros to present a negative position amounting to 53.5 billion. This is the result of an increase in the deficit in the balance of goods, from 41 billion to 110.1 billion, driven by an increase in the energy bill following the escalation in energy prices. Excluding energy, the deficit in the balance of goods showed a decrease from 26.4 billion to 24.4. Nevertheless, the services balance continued to record a surplus, registering an improvement to 49.9 billion (36.4 in 2021), after a stronger recovery of the tourism sector in 2022.


The February 2023 inflation rate is confirmed, declining slightly to +8.2% yoy (+8.4% in January). Nevertheless, core inflation continues to exert upward pressure, increasing slightly to +7.2% yoy (7.1% in January). Thus, one of the main drivers of this decline stems from the easing in the energy markets, with price increases decreasing to +1.9% yoy (+7.3% in January), a trend that we expect to continue in the coming months due to the statistical effect after the war outbreak. However, food remains one of the main concerns, maintaining the escalation of recent months to +20.1% (+18.5%), which could hinder the scenario of price easing that we expected to see this year.

In addition, industry broke with the slowdown trend that had been shown at the end of last year. Therefore, the Industrial Production Index showed an increase of +4.5% yoy in January (+1.9% in December). Moreover, although the energy sector continues to be the main driver of industry, the manufacturing industry is holding up, presenting an increase of +1.3% yoy after the drop of -0.2% in the previous month.

On the other hand, the position of Portuguese public finances continues to improve, favored by the good performance of the economy, inflation and the presence of primary surpluses in its public accounts. Thus, the country has shown an improvement in the level of public debt, closing 2022 at 120% of GDP, far from the levels presented at the beginning of 2021 (140%), although still at significant levels.