MacroEconomic Bulletin - First half of October 2023


#Poland (EU's fifth largest economy ) held its most important and tightest #elections in the last 25 years on October 15, resulting in a historic participation. The ultra-conservative Law and Justice party (PiS) has won the elections in percentage of vote, but lose the absolute majority to the liberal opposition led by Donald Tusk with the aim of forming a coalition Executive, creating a scenario of uncertainty in the formation of a final Government. These results show a shift towards Europeanism.

Furthermore, the International Monetary Fund (IMF) has updated its #WorldEconomicOutlook, maintaining its growth forecasts for the world economy for 2023 (+3.0% year-on-year), but revising slightly downwards those for next year (+2.9% from +3.0%). It also revises downward its growth forecasts for the eurozone and China, while pointing to further strength in the U.S. economy. The IMF's current scenario is one of softlanding. However, it stresses that the global economy faces risks, such as China's real estate crisis, commodity price volatility and geopolitical tensions. In addition, the IMF is closely monitoring the Israeli-Palestinian conflict, which could have an impact on oil prices, as a 10% increase could reduce global production by 0.2% and raise global inflation by 0.4%. Finally, and contrary to some market expectations of lower interest rates in the coming year, the institution advises central banks to avoid premature easing due to the persistence of inflation.

In #USA, the #inflation increased +3.7% from a year ago, above forecasts for +3.6%, keeping inflation in the spotlight for policymakers. Shelter costs, particularly housing costs (+7.2%), were the primary driver of the recent inflation surge.  Excluding volatile food and energy prices, the so-called core CPI increased +4.1% year-on-year, in line with expectations. Federal Reserve officials are currently considering their future policy actions. While the committee decided not to raise interest rates in September, the minutes indicated concerns about inflation and potential risks. Although price growth is more stable than in previous months, it doesn’t mean its weight is not increasing every month on family budgets.

Meanwhile the  #inflation picture in #China presents a stark contrast, remaining flat on an annual basis, with the CPI for September failing to meet expectations and core inflation at +0.8%. This data is a reflection of the weakness of domestic and international consumption, and highlights the necessity for increased policy support to revitalize the Asian giant's economy. Domestic demand remains subdued, partially due to the ongoing real estate crisis, which has cast a shadow on consumer confidence. This dynamic carries both positive and negative implications for the global economy. On one hand, China is likely to continue exporting deflation, which can help alleviate price pressures in global supply chains. However, it also suggests that, despite maintaining positive growth rates, China might not serve as a robust growth engine for the global economy this year.

Focusing on some of the major eurozone economies…

#Spain:  The advanced rebound in inflation in September was confirmed, standing at +3.5% yoy (+2.6% in August). This rebound was mainly due to the increase in housing and transport prices, given the hikes in electricity and fuels that we have been observing, a situation that could worsen if tensions in the middle east continue and escalate. Nonetheless, core inflation continues to fall, decreasing to +5.8% yoy (+6.1%), highlighting the decline in leisure and culture prices with the end of the summer season.

#France:  According to INSEE, provisional data for #inflation is confirmed at +4.9% in September 2023. Specifically, the main driver of inflation has been energy prices (+11.9% vs. +6.8%), however food prices present slight negative rates this month (-0.3% after +0.3%), for the first time since October 2021. Despite this decrease, inflation remains high for the ECB targets, in fact looking at core inflation, the indicator remains stable at +4.6% in September 2023.

#Germany:  The Federal Statistical Office (Destatis) confirms the year-on-year #inflation rate predicted a few weeks ago at 4.5%. This represents the biggest drop in inflation since the start of the conflict in Ukraine. However, inflation still remains high and far from the eurozone target, where food prices remain high (+7.5% in September 2023), affecting household incomes directly. Likewise, core inflation remains high at +4.6%. On the other hand, #industrialproduction is expected to fall further in August 2023 to -2.0% yoy. Different evolutions are seen in the economic sectors. Production is reduced for the case of construction  (-2.4%) and energy (-6.6%), while it grows in the automotive industry (+7.6%) after a decline last July.

#Portugal: the INE confirms the advanced #inflation figure for September, which shows a slight drop in the headline index to +3.6% yoy (+3.7% in August) and in the core index to +4.1% (+4.5%). However, inflation is still high, mainly due to food price pressures. Also, beyond the economic data, the Portuguese government presented its #2024DraftBudget, from which we highlight the evolution of its public finances, reaching a fiscal surplus in 2023 and 2024, and a public debt that will fall below 100% of GDP already in 2024, debt levels not seen since 2009.