MacroEconomic Bulletin - Second half of May 2023



May Flash PMIs remain in the expansion zone, although supported by the services sector. The composite Flash PMI for the euro zone stays below the expansion zone at 53.3 points, although it shows a decrease compared to April (54.1). This decline is explained by a drop in the manufacturing sector, which remains below the contraction zone, while the services sector continued to register improvements, maintaining its position as the economic driver. Likewise, the Flash PMIs for France and Germany were released, both remaining in the expansion zone (54.3 and 51.4 respectively), also supported by the services sector. Thus, and in view of the latest surveys of expectations, these point to a slight improvement in growth figures in the second quarter of the year, mainly driven by the services sector, although they will keep a mild pace due to the negative effects of the interest rate hikes and still high inflation.

In April 2023, the United Kingdom registered a +8.7% annual inflation rate and a +1.2% monthly increase. The lower prices of electricity and gas contributed to a decline in annual inflation, while still adding 1.01 percentage points to the annual inflation figure. Moreover, food and non-alcoholic beverage prices continued to rise, although the annual inflation rate for this category decreased slightly from +19.2% in March 2023 to +19.1% in April 2023. Finally, the CPI goods annual rate reduced to +10.0%, while the CPI services annual rate increased to +6.9%.

The Bureau of Economic Analysis confirms that the U.S. GDP grew more than initially anticipated, while the debt ceiling deal was reached. In the USA, GDP increased at an annual rate of +1.3% in the first quarter of 2023 (+2,6% qoq) according to the second estimate released by the Bureau of Economic Analysis. In the previous Flash Estimate, the increase in real GDP was +1.1%, the updated estimates primarily reflected an upward revision of private inventory investment. On the other hand, Biden and McCarthy reached an agreement on the debt ceiling. Although the deal must still be voted on in the House and Senate this week, it is expected to be done to avoid a default on government obligations, extending the final deadline to June 5. In order to reach this agreement, both parties had to compromise, agreeing on a fiscal adjustment, which we at EthiFinance Ratings value positively given the high levels of debt and deficit that the country has been presenting. Thus, the risk of a default on US sovereign debt, which would have caused major negative implications for the stability of the global financial and monetary system, has been eased. However, we continue to point out that if such fiscal adjustment is not made effective, it could imply going through this unwise situation once again in the future.


The INE's flash CPI indicator points to a drop in inflation to +3.2% yoy in May 2023 (+4.1 in April), its lowest level since July 2021. As in the last two months, the normalization of this indicator is explained by the fall in fuel prices, which experienced a sharp rise with the outbreak of the war. Food prices, which had been one of the main inflationary pressures at present, also had a negative influence. In addition, core inflation, which had remained more sticky, continues to show a downward trend to +6.1% (+6.6% in April). On the other hand, the Industrial Price Index maintained in April the disinflationary trend it presented last month, with a decrease of -4.5% yoy (-1.4% in March). The groups of goods that stand out for their negative influence are chemical products, especially fertilizers and the manufacture of products for animal feed, providing a favorable perspective on the evolution of costs in the agricultural and livestock sector.

In addition, after months of consecutive declines, consumer confidence has rebounded and equaled that reached in January of this year (73 points), the highest since the outbreak of the war. Although both components -current and future outlook- have improved, it is worth noting the eight-point increase in the view of the current economic situation to 62.8 points, an index that continues to weigh on the total, while the future outlook is more optimistic, with an index of 83.1 points. Hence, consumer confidence is beginning to improve as some risks are normalizing, a development that is encouraging after the slowdown observed in consumption during the first quarter of the year.


The INSEE confirms the advanced growth data for France in the first quarter, which maintains a moderate growth rate (+0.2% qoq and +0.8% yoy). Nevertheless, in quarter-on-quarter terms, the pace was maintained due to the sharp drop in imports (-2.8% qoq), which led to a positive contribution from external demand (+1.0%). Meanwhile, domestic demand made a negative contribution, with a fall in all components except consumption, although growth was weak (+0.1%). Thus, despite avoiding recession, we observed a sharp slowdown in consumption and investment within the French economy in the first quarter of the year. In addition, the labor market remained stable during the first quarter of the year. The unemployment rate stood at 7.1% of the labor force, unchanged from the previous quarter, but still 0.3 percentage points lower than a year earlier.

In this regard, in May 2023, household confidence in the economic situation remained stable in France, with an index of 83 points, below its long-term average of 100. In this regard, there is a slight improvement in the future financial situation, while past financial situation and major purchase capacity remain below average. Concerns about unemployment have slightly increased, and there is a decrease in the opinion on past price changes and inflation outlook. On the other hand, the business climate in wholesale trade deteriorated significantly, with the composite indicator dropping by four points compared to March 2023 to 94 points, below its long-term average of 100. Most of the sectors’ balances of opinion worsened, especially regarding past sales and the volume of merchandise received from abroad. Wholesalers' ordering intentions declined, and there was a significant retreat in the balances of opinion on selling prices.Therefore, based on these two economic indicators, expectations for the future of the economy appear stagnant in May, which may lead to a further slowdown in future consumption and production, pushing domestic demand into an even more unfavorable situation for the French economy.

Finally, after the rebound last April, inflation decreased again to +5.1% yoy (+5.9% in April; Flash estimate). This decline was due to a generalized slowdown in the prices of various product groups, with the downward influence of energy prices standing out. In addition, we note that, although inflation in the country remains high, it did not present such extreme rises as in other countries due to the outbreak of the war, with inflation in May 2022 standing at +5.2%. Likewise, the price of industrial products continued to decelerate to +5.0% in April (+9.5% in March), with a monthly drop of -4.1%, which will contribute to lessen inflationary pressures in the future.


Germany's IFO Business Climate Index fell to 91.7 points in May (93.6 in March), after six consecutive increases. Pessimistic expectations and lower satisfaction with the current situation contributed to this decline. Moreover, manufacturing experienced a significant downturn, with expectations worsening and orders decreasing. The service sector remained mostly unchanged, while the trade sector saw a notable decline in both the current situation and expectations, particularly in wholesale. Moreover, construction also saw a decline due to worsened assessments of the current situation. On the other hand, consumer confidence remains almost stable in May 2023, after the remarkable improvement of the previous month. While income expectations have risen for the eighth time in succession, both the propensity to buy and economic expectations have suffered slight losses. Consumer sentiment is not showing a clear upward trend at present. However, the still very low level of consumer sentiment indicates that private consumption will not make any significant contribution to overall economic development in Germany this year. Overall, these two consumers show a clear negative trend in economic growth, as can be seen in the final Q1 GDP, due to the fact that domestic demand is not able to generate enough power for growth.

The Statistisches Bundesamt has confirmed the final figures for economic growth in the first quarter of 2023, where GDP has fallen by -0.3% qoq (-0.5% yoy). Therefore, after GDP growth entered into negative territory at the end of 2022, the German economy has now recorded two consecutive negative quarters, falling into technical recession. On a quarterly basis, there was a decline in household consumption expenditure (-1.2% ) and government consumption (-4.9%) in Q1 2023. However, investment showed a positive growth, with construction (+3.9%) and machinery/equipment (+3.2%) performing well. Foreign trade also contributed positively, with exports up by +0.4% and imports down by +0.9%. Overall, declining consumption weighed on the economy, but investment and some sectors showed a positive growth.

Finally, in May 2023, the inflation rate in Germany is expected to reach +6.1% (Flash Estimate) compared to the same month last year. This represents a continued decrease in inflation from previous months (April 2023: +7.2%, March 2023: +7.4% and February 2023: +8.7%). Consumer prices are also projected to decline by -0.1% compared to April 2023. As for food prices, they showed above-average year-on-year growth (+14.9%), while energy prices increased by +2.6%, below the general index. The lower energy price increase can be attributed to a high index level in May 2022 and the impact of government relief measures. Moreover, the service sector has also experienced a slight downward trend, potentially influenced by the introduction of the "Germany ticket".


A strong expansion of the Portuguese economy was confirmed for the first quarter of the year, driven by exports, while a slowdown in consumption and investment was observed. Thus, Portugal started the year recording a solid growth (+1.6% qoq and +2.5 yoy), after last year's rebound where the economy grew by +6.7%. This growth was driven by exports, which posted a strong advance (+6.8% qoq), reflecting the combined effect of gains in terms of trade and the positive behavior in volume due to the advance in services exports. Nevertheless, on a quarter-on-quarter basis, domestic demand contributed negatively (-0.8%), with household consumption showing zero growth and investment contracting.

In addition, according to the flash estimate published by the Portuguese INE, inflation maintained a downward trend in May, standing at +4.0% (+5.7% in April). This slowdown in prices was due to the downward influence of energy and food prices. In this sense, we highlight the performance of food prices, which dropped from +14.1% in April to +8.9% during this month, influenced, in part, by the VAT reduction in some essential food products. Likewise, core inflation followed a similar trend and stood at +5.5% yoy (+6.6% in April).

Finally, we highlight the upgrade of Portugal's rating by EthiFinance Ratings, from BBB with Positive outlook to BBB+ with Stable outlook. In this regard, this upgrade responds to the rapid recovery of the Portuguese economy, with ample growth potential given the latest structural reforms carried out in the country. We also highlight the fiscal consolidation process undertaken, with a deficit level already below Maastricht levels in 2021, and a debt level on a downward trend, favored by both economic growth and the presence of primary surpluses in its public accounts.