MacroEconomic Bulletin - End March 2023



The FED sustains the interest rate hike. Despite the financial sector turmoil, the FED raises the interest rate again by 25 bps, to the 4.75%/5.00% range. Moreover, it has stated that inflation remains one of the central bank's main concerns, so further rate hikes are expected in the coming months, albeit we note the dovish tone of this intervention, so we expect them to occur at a slower pace. Thus, the FED highlighted the monitoring of certain factors which will determine the pace of hikes, mainly the evolution of the international situation -and especially of the financial markets-, inflation and the imbalances in the labor market, where the supply of jobs still exceeds the demand.  On the other hand, the FED has also revised its forecasts for this year, pointing to a slightly higher inflation (+3.3% vs. +3.1%) and lower economic growth (+0.4% vs. +0.5%) in the United States.

The euro zone's inflation continues its downward trend. Eurozone CPI was below analysts' expectations in March, falling to +6.95 yoy (+8.5% in February; Flash estimate), influenced by the statistical effect following the outbreak of the war. However, core inflation continued to increase to +5.7% (+5.6% previously), as it is not influenced by this statistical effect as its increase occurred mainly in the second half of the year, following some pass-through effects.

Regarding the Flash PMIs, expectations are improving sharply. The composite PMI for total activity in the euro area stands at 54.1 (52.0 in February), its highest score in the last ten months. The main reason is due to the impulse in the services sector (+3 points compared to February) caused by the recovery in the financial services segment in real estate activity, despite recent concerns about the stability of the banking sector and the increase in interest rates. However, the overall growth rate remains moderate and is only driven by the services sector, with the manufacturing sector remaining constant (50 points). Within the eurozone, France and Germany have been the countries with the most important increases in the index. Likewise, in the U.S. there is also an improvement in expectations, where the increase in the index was the highest in almost a year, and signaled a solid expansion of private sector activity.


The INE has confirmed the GDP growth flash estimate for the fourth quarter of 2022, standing at +0.2% qoq (+2.6% yoy). Nevertheless, this increase was driven by the positive contribution of domestic demand (+1 point), through the reduction of imports. Likewise, both investment and consumption presented contractions, signs that point to an economy that is beginning to yield in the face of rising prices and tighter financing conditions. Thus, 2022 growth is confirmed at +5.5%, driven by both domestic demand (+3.1 points) and external demand (+2.4 points).

Furthermore, in line with expectations, CPI falls to +3.3% yoy in March (+6.0% in February; Flash estimate), as the statistical effect after the Ukrainian war is starting to be apparent. Thus, inflation experiences a significant drop mainly influenced by electricity and fuel prices, which increased significantly in March 2022 with the outbreak of the war, and present a downward trend at present. However, core inflation remains high, decreasing slightly to +7.5% yoy (+7.6% in February). Moreover, other price indicators present a similar trend, with the Export and Import Price Indices falling in February to +5.1% yoy and +6.5% (+5.7% and +11.4% in January).

On the other hand, Spanish public finances showed an improvement in 2022, with a deficit cut to -4.8% of GDP (-6.9% in 2021), lower than initially expected. This improvement responds mainly to the increase in revenues and the GDP denominator effect, favored by the economic recovery and inflation, while public spending continued to rise.  In addition, despite the worsening external sector conditions during 2022, the country managed to maintain a positive current account balance (0.6% of GDP), although below that recorded in 2021 (1.0%). Hence, although the surplus of the balance of services presented an improvement driven by tourism (from 37.6 million to 77), this was insufficient to offset the effect of higher prices, with a worsening of the deficit of the balance of goods (from 19.7 million to 58.3).


Inflation continues its downward trend, with the March CPI decreasing  to +5.6% yoy (+6.6% in February; Flash estimate). This decline in inflation results from a slowdown in energy prices due to the new decrease in petroleum product prices, while prices of food continued to grow compared to February. Although inflation in France softened less than expected (one tenth above analysts' estimates), it should be noted that the rise  in March 2022 was lower than in other countries (+4.5% yoy).

In 2022, according to the INSEE, France recorded an improvement in public finances compared to 2021. In this sense, the public deficit decreased to -4.7% of GDP (-6.7% in 2021) and the public debt to 111.6% of GDP (112.9%). However, we highlight that the debt-to-GDP ratio improved mainly due to the denominator effect of GDP, while it continued to increase in volume. Regarding the deficit, the improvement was driven by a higher increase in revenues than in expenditures, which remained dynamic (+7.3% vs. +8.4%), while expenditure rised at  the same level (+4.0% vs. +3.9%).  Therefore, the rapid growth of total income was favored by a good economic performance as well as  the inflationary situation.

On the other hand, consumer confidence remains at around 80 points in March, as it was in previous months. Nevertheless, it is still significantly below the long-term average of 100 points. This could imply a scenario of slowing consumption, as has been observed during the first quarter of 2023. As for the business climate, the outlook continues to be above its long-term average, despite registering a slight decrease of 1 point compared to February, standing at 102. The climate has deteriorated moderately in most activity sectors, except in wholesale trade, for which the business situation has improved compared to January.


According to the Statitisches Bundesamt, the March CPI improved slightly to +7.4% yoy (+8.7% in February; Flash estimate). Despite the result being above the 7.3% expected by the consensus’ estimates, this improvement is mainly due to the significant deceleration in energy prices (+3.5%) after those prices had jumped in March 2022 with the war outbreak (+19.1% yoy in February). However, food prices continued to show above-average growth, rising 22.3% year-on-year, compared to 21.8% in the previous month. Furthermore, albeit this drop in energy prices, we note the persistence of inflation, which was already high in March 2022 (+7.3 yoy).

Meanwhile, expectations continue to improve, although they are still in pessimistic territory. Thus, the Consumer Confidence Index measured by GfK reflects an improvement in consumer expectations in April, although still in negative territory (-29.5 points), so that consumption is still expected to maintain a negative contribution. Likewise, despite the initially expected decrease, the Ifo business climate index improved in March to 93.3 points (91.1 in February). As a result, the trend of improving business expectations continues in spite of the recent turmoil in the financial markets, with an improvement in the German economy expected from spring onwards, according to the survey.

Nevertheless, the Bundesbank advanced its estimates of a new fall in GDP in the first quarter of the year, which, added to the drop recorded in the fourth quarter (-0.4% qoq), would push the country into technical recession (2 consecutive months of quarter-on-quarter contraction). While noting that they expect this drop to be minor compared to the previous quarter, given the good increase in production in industry and construction at the beginning of the year.


Portuguese inflation continued to fall in March to +7.4% yoy (+8.2% in February; Flash estimate). This decrease resulted from the fall in fuel prices, which had risen sharply in March last year due to the outbreak of the war. Overall, the contribution of the energy component was negative for the first time in the last 12 months (-4.4% yoy) while food prices continued to increase considerably (+19.3%). However, it should be noted that a significant drop in this indicator was not expected, given that the increase in inflation in March 2022 was more contained (+5.2% yoy), favored by an electricity market more insulated from price fluctuations.

As for the expectations indicators, consumer confidence continues to improve, pointing especially to better major purchase prospects, albeit with worsening opinions about the country's economic situation. On the supply side, the outlook is similar, with an improvement in the overall economic climate, led by stronger prospects for industry and construction, although the latter begins to point to interest rates as one of the main factors limiting activity. Nevertheless, the outlook in the trade and services sectors worsens, especially in the former.

On the other hand, Portugal continued the fiscal correction path already started in 2021, with a deficit reduction to -0.4% of GDP (-2.9% in 2019), which falls below the latest projections of the Portuguese government (-1.5%). This significant reduction is the result of the strong recovery in activity and the labor market during the previous year, as well as rising inflation, resulting in an increase in revenues of +10.2% yoy compared to a more contained expenditure of +4.4%, despite the increase in benefits to combat the effects of higher prices. Furthermore, we highlight the return to a primary surplus in its public accounts, favoring the reduction in the volume of debt organically, although it still remains at high levels (120% of GDP).