MacroEconomic Bulletin - Second half of August 2023


#United States: The US economy grew less during the second quarter, with a 2Q GDP growth revised downward to +2.1% yoy (+2.4% initially estimated). In addition, the labor market (the number of job openings decreased on a monthly basis) and expectations indexes (the August PMI contracted by two points to 50.2) point to a slowdown in the third quarter, although we expect the country to maintain positive growth compared to a year earlier. On the other hand, July inflation data were also released, which, although reflecting a slight rebound in headline (+3.3% vs. 3.0% in June) and core inflation (+4.2% vs. 4.1%), was in line with expectations and within the range expected in a scenario of price easing. Thus, given the contained evolution of the US economy and inflation, we consider it likely that the Fed will pause rate hikes at its September meeting.

#Eurozone: The mixed outlook is accentuated in the euro zone by the fact that, on the one hand, some of its economies are already presenting signs of a downturn, together with a continued decline in all sentiment indicators, pointing to a second half of the year in which economic growth will suffer from the tightening of financing conditions. Meanwhile, on the other hand, inflation has remained sticky in August (+5.3%, influenced by the trend of rising fuel prices, caused by OPEC+ supply pressures) and the labor market maintained unemployment rates at all-time lows in july. Furthermore, albeit the upturn is being driven by more volatile components and the increase in other product groups is on a downward trend, it still presents high rates and far from the 2% target. Thus, and in view of the resilience still shown by some euro area economies in the first semester of the year, at EthiFinance Ratings we maintain our forecast of a further 25 basis point hike in September, which could put an end to the 2023 hike cycle amid poor economic performance data.

Focusing on the main economies....

#Spain: In line with consensus and according to advance data, #inflation rebounded again to +2.6% in August (+2.3 in July). This rebound is mainly due to the upward influence of fuel prices, which have been rising since the beginning of the summer, a situation that we do not expect to be reversed in the short term. However, other price indicators point to a moderation in the prices of other product groups, with core inflation moderating (+6.1% vs. +6.2%), and industrial and import/export prices contracting again (-8.4%, -2.7% and -8.7% respectively).

#France: #inflation is expected to rebound slightly for the first time since April 2023 to +4.8% (+4.3% in July 2023). This increase in inflation should result from a rebound in energy prices (-3.7% vs. +6.8%). The prices of food should slow down (for the fifth consecutive month, +12.7% vs. +11.1%). In Q2 2023, #GDPgrowth is confirmed at +0.5% quarter-on-quarter, after growing at 0.0% in Q1 2023. However, domestic demand continued to weaken (excluding inventories), again contributing negatively to GDP growth (-0.2 points after -0.1 points). In particular, household consumption declined further (-0.17 points after 0 points). On the other hand, foreign trade increased, with a positive contribution for the third consecutive quarter (+0.3 points after +0.4 points).

#Germany: The August #inflation figure is advanced, which is expected to be +6.1% year-on-year  (+6.2% in July). Results are very similar to July. However, we only see a decrease in the price of food (+11.0% vs. +9.0%), albeit above their average growth, and a slight increase in the price of energy (+5.7% vs. +8.3%, as a consequence of the low index level of August 2022).  Moreover, Sentiment among German managers has darkened further. The #ifoBusinessClimateIndex slipped its fourth consecutive fall. Moreover, companies are increasingly pessimistic about the months ahead.

#Portugal: After 10 months of declines, #inflation is estimated to have rebounded in August to +3.7% (+3.1% in July). As in other euro area countries, this rebound was due to higher fuel prices, while other product groups that had been pushing upwards, such as food (+6.5% vs. +6.8% in July) continued to moderate. Thus, core inflation did maintain its downward trend and fell slightly to +4.5% (+4.7% in July).

Finally, and in geopolitical terms, the 15th meeting of the #BRICS took place on August 23 in Johannesburg. Where they announced the incorporation of six new members (Saudi Arabia, Egypt, Argentina, United Arab Emirates, Ethiopia and Iran), meaning that the BRICS+ will have a very significant economic (37% of the world economy) and demographic (46% of the world population) weight and, in addition, among the new members of the group are several of the largest energy producers. On the more commercial side, the most talked-about (and complex in the medium term) economic ambition is the so-called de-dollarization of international trade, or at least of trade between BRICS+ partners.