MacroEconomic Bulletin - Second half of July 2023


Economic activity in the eurozone cools, the leading indicators of economic activity (PMIs) highlighted that manufacturing activity continues to deteriorate (PMI of 42 points below expectations of 43 points) while services activity also deteriorates (PMI: 52 points, below expectations of 54 points), bad signs for the third quarter of the year, which could turn negative again after a Q2 that we expect not to surprise with a quarter-on-quarter growth of 0.3%. All in all, we maintain our view of GDP growth for the year as a whole at around 0.9%.

As expected, central banks have not abandoned the roadmap and are continuing with rate hikes by a quarter point in the case of both the ECB and the FED. Specifically, in Europe, the deposit rate stands at 3.75% and the credit facility at 4.25%. We expect a further 25bp hike at the September meeting as inflation data continues to show worrying figures (for example, the rebound in Spain). However, we think that the ECB cannot lose sight of the poor economic growth or private sector credit demand data, so we expect it to end with rate hikes after the next meeting. Regarding the FED, they placed rates in the 5.25%-5.5% range, and although it is true that the US labor market remains resilient, it seems that wage pressure is losing steam and inflation continues to fall (it closed June at 3%), which justify a new pause in rate hikes for the next meeting.

Spain: GDP in the second quarter surprised on the downside with a growth of 0.4%, below our expectation of 0.5%, but in any case, consistent with an annual growth in the range of 2.1%-2.3% (below the optimistic IMF latest forecasts). Services and tourism data has not been enough to avoid the permeation of monetary policy in the real economy. Speaking of inflation, in July we observed a new rebound to 2.3% due to tourism services and fuel prices. However, we expect that after the summer, inflation rates will continue with the recovery trend following the performance of the latest industrial price index (in June it was -8.1%).

France: contrary to Spain, it surprises but on the upside, with a quarterly GDP of 0.5% that exceeds expectations, mainly boosted by the export component rather than private consumption, which maintains the weakness that we also observed in the Spanish case. We maintain our view of GDP growth for the year as a whole at around 0.8%-1% range. Finally, we highlight that inflation remains high at 4.3%, similar to expectations, and slightly below June’s figure (4.5%).

Germany: stagnates in Q2, with flat GDP growth of 0%, after two periods in negative territory, thanks to private consumption, which offsets the poor performance of the manufacturing sector. Looking ahead to the third quarter, there are high downside risks, as anticipated by the poor performance of the manufacturing PMI (38.8 points below expectations) and a composite PMI that turned to the negative zone. Inflation is also on a downward trend, down to 6.5% from the previous 6.8%, but still high... bad news that reinforces the maintenance of the ECB's roadmap.

Finally, and in geopolitical terms, the week began with a coup d'état in Niger following the failed 2021 attempt. Niger's economy is mainly primary, although the uranium mining industry is important and its main trading partners are France and the United States. The president is currently under retention and the vice-president has taken over as acting president. International authorities support the ousted government and demand the immediate release of the president.