MacroEconomic Bulletin - First half of June 2023



In May, the latest Global Europe Sector PMI data revealed a divergence between the performance of manufacturing sectors and service-based industries, the latter with strong performance. Some industries in Europe slipped back into contraction territory, indicating signs of weakness in the second quarter. Half of the monitored sectors experienced output uplifts, the lowest since February, but still stronger than in late 2022. Services-based industries showed growth, while manufacturing sectors were generally weaker. Given that, services are likely to continue to be the engine of growth for the 2023 fiscal year. However, due to the stationary effect, it is very likely that this effect will diminish at the end of the year and a slowdown in consumption could appear. On the contrary, signs of improvement continue in the Banking, Insurance, and Other Financials, despite the decline in real estate activity. And finally, inflationary pressures eased, with lower input prices in most sectors. On the other hand, in the USA, technology sector records its fastest upturn in output since March 2022 and moreover, consumer Services and Healthcare continue to outperform. Bucking this positive trend, basic materials was the only sector to experience a decline in production.

As we anticipated in our latest bulletin, the ECB makes another rate hike and hints there are more to come. Following its meeting on June 15, the ECB announced a further rate hike of 25 basis points, increasing the benchmark rate to 4.0%. Moreover, with inflation still high -average inflation in the euro zone stood at +6.1% yoy in May- Lagarde maintained a hawkish tone in her speech, we expect another 25bp hike in the next meeting. Nevertheless, the euro zone economy is already starting to weaken, entering a technical recession in the first quarter of the year, with a contraction of -0.1% qoq. The ECB has also slightly revised down its growth forecast for this year to +0.9% (+1.0% previously).

Meanwhile, the Fed pauses rate hikes, with inflation slowing and the labor market losing steam. In line with expectations, the Fed communicated its decision to pause rate hikes at its June 14 meeting, leaving the price of money between 5.0% and 5.25%. However, it leaves the door open to further hikes for the rest of the year, with a possible increase of up to 50 basis points, according to Powell's latest statements. In addition, the updated Fed's dot plot -the chart that indicates the position of each Fed official on the level of rates- points to no rate cuts until 2024, and still above the 2.25%-2.5% presented before the pandemic in 2025. This pause in hikes is justified by the pursuit for the real impact of monetary tightening, as well as an inflation that continues to moderate -registering an annual change of +4.0% (+4.9% in April), its lowest level since March 2021- and a labor market that is losing steam, with a slight increase in the unemployment rate to 3.7%. In fact the Sahm rule (three-month moving average of the national unemployment rate) alerts of the begining of a recession in some US states.  In addition to this, delinquency rates have worsenen in credit cards and auto loans. Despite the tightening of financial conditions, the Fed has revised up its growth forecast for this year to +1.0% (+0.6% previously), growth that is expected to be maintained in 2024 (+1.1%), albeit below potential growth.

Looking ahead to the next meetings, we expect to see differences in the behavior of both central banks. In the case of the ECB, with inflation still high, we can expect further rate hikes "no matter what", which could reach the 3.75-4.0% range. Meanwhile, in the case of the Fed, further rate hikes will be closely linked to the evolution of the US economy, so we should not expect a much larger monetary contraction, remaining at 5.25%-5.5%.


The INE confirms the inflation figure for May, which moderated to +3.2% yoy (+4.1% yoy in April), with a null monthly variation. Hence, while electricity remains the biggest downward driver (-10.5% yoy), transport (-3.7%) stands out for its negative influence, due to the drop in fuel prices, and food, despite maintaining high rates (+12.0%), grew at a lower rate than in the previous month. Likewise, core inflation, which had remained more sticky, continues to show a downward trend to +6.1% (+6.6% in April).

On the other hand, other conjunctural indicators point to a mixed scenario, while industry is starting to slacken, consumer confidence maintains the pace of recovery and the labor market remains at record highs. In this sense, despite rising costs, Spanish industry had remained resilient during 2022 and the first quarter of 2023, although we are observing signs of weakening, which are mainly related to a fall in demand. Thus, the Industrial Production Index registered a -0.9% annual decline corrected for seasonal and calendar effects, a decline that we expect to be maintained during the rest of the quarter, as other leading indicators for May, such as the manufacturing PMI, point to a drop in orders. Nevertheless, consumer confidence continues to improve, rising to 81.5 points, levels not seen since the summer of 2021, reflecting an improvement in both expectations (91.5 vs. 83.1 in April) and the current situation (71.5 vs. 62.8 in April), albeit still below. We expect a GDP growth rate for Spain of 1.9% this year and 2.0% for next year.

Regarding the labor market, the number of registered workers continued to grow in May, with an increase of 47,883 people in seasonally adjusted terms, exceeding 20.7 million for the first time. Although the increase is lower than in previous months, we expect the pace of job creation to be maintained during the next quarter, with the summer campaign. As for the seasonality rate, it continues to improve to 13.2%, with full-time permanent contracts being the type of contract where more people are currently employed (56.6% of the total compared to 52.6% last year).


First, the INSEE has published the final results in May concerning the consumer price index (CPI), which increased by +5.1% yoy (-0.1% mom). Specifically, over a month, the decrease in energy prices accentuated (‑3.0% after ‑0.7%) in the wake of petroleum product prices (‑5.9% after ‑0.6%). On the contrary, the prices of food slowed down (+0.3% after +0.6%). Moreover, looking at year-on-year change, inflation has a decreasing trend this year (April: +5,9%, March: +5,6%, Feb +6,2%, Jan: +6,0%), which shows positive news for the French economy. Over a year, we can observe a slowdown in both energy prices and food prices, for instance, the prices of energy slowed down in May 2023 (+2.0% after +6.8%), driven by the decrease in petroleum product prices was more marked than in the previous month (‑9.7% after ‑1.3%). As for food prices, they rose by 14.3% in May 2023, after +15.0% in April. Excluding fresh products, food prices slowed down for the first time since September 2021 (+14.9% after +15.8%).

On the other hand, in April 2023, the industrial production index (IPI) increased moderately over a year in the whole industry (+0,7%). Moreover, we observe better results in the manufacturing sector, output of the last three months (February to April 2023) was +1.6% higher than that of the same months a year ago. The increase in manufacturing output is driven by a significant expansion in transport equipment (+18.1%) and machinery and equipment goods (+5.0%). On the contrary, output declined in mining and quarrying, energy, water supply (‑3.9%), and in the manufacture of food products and beverages (‑2.1%). Energy-intensive industries faced sharp output declines due to high production costs, with basic iron and steel, ferro-alloys (-22.7%), paper and paperboard (-24.7%), and basic chemicals (-15.5%) being most affected. This reflects the mixed performance of the manufacturing sector over the past year.


The Statistisches Bundesamt has confirmed its previous outlook about the CPI by +6.1% in May 2023 compared to the same month a year earlier. In both March and April 2023, over a year, the inflation rate stood at over +7% (March: +7.4%; April: +7.2 %). Nevertheless, despite the rate of inflation has continued to slow, it remains at a high level. While the year-on-year increase in energy prices was much smaller in May, food prices continued to be the biggest driver of inflation. The increase in energy product prices therefore slowed notably (+2.6% in May, after +6.8% in April yoy) and is meanwhile markedly lower than overall inflation. This is mainly due to a base effect originating from last year's large price increases as a result of the Russian attack on Ukraine. And, on the contrary, despite of food prices were up by +14.9% yoy in May 2023, the increase in food prices slowed somewhat (+17.2% in April yoy). In addition, the selling prices in wholesale trade fell by -2.6% yoy (-1.1% mom), and this was the highest decrease compared with the preceding year since July 2020. The year-on-year decrease was mainly due to the price decrease of mineral oil products by -22.7%. At EthiFinance, we believe that this may indicate that inflationary pressures will continue to reduce in the coming months.

Concerning the production index for the industry (IPI) in April 2023, it increased by+1,6% on the same month a year earlier (Flash Estimate). Over a month, the index was up by +0.3% (-2.1% on the previous month). Different developments within production in industry can be observed among the economic sectors. On the one hand, production in construction has returned to a positive trend (+2.0% mom), after it decreased by -2.9% in March 2023. The manufacture of pharmaceutical products saw a +6.4% growth. However, motor vehicle production (-0.8%) and engineering (-0.5%) had a negative influence. On the other hand, the production of consumer goods increased by +1.5% (mom) in April, and on the contrary, Energy production and the production of intermediate goods fell by -1.5% and -0.2% mom, respectively.


The Portuguese INE has confirmed the slowdown in inflation to +4.0% yoy in May (+5.7% in April), mainly driven by the moderation of electricity, gas (-15.5% yoy vs. -12.7% in April) and food prices (+8.9% vs. +14.1%). The latter also benefited from the VAT rebate for some essential foodstuffs, which according to INE estimates would have had an effect of 0.8 percentage points on the overall CPI. Core inflation also showed a marked moderation, dropping to +5.4% yoy, compared to +6.6% in April.

In addition, in the last few weeks, data relating to industry have also been released, reflecting a continuation of the negative trend initiated at the beginning of the year. Thus, in April, industrial production again recorded a fall with respect to the previous year, with the variation standing at -7.0% yoy (-3.6% in March). As for the manufacturing industry, it presented a similar trend, registering a drop of -5.0% (-1.5% in March). On this basis, and according to the latest developments, we expect industry to maintain the slowdown trend, albeit the services sector -with a greater weight in the Portuguese economy- will maintain a moderate evolution, sustaining Portuguese growth.