MacroEconomic Bulletin - First half of November 2023


The #EuropeanCommission updated its #EconomicForecast, where Gentiloni notes a loss of momentum in the European economy this year. Factors contributing to this include high consumer prices, weakened external demand, and tighter monetary policy. In terms of #growth,  while current economic activity is moderate, a gradual recovery is anticipated from 2024 onward, driven by expanding employment and increasing real wages. Growth forecasts stand at +1.2% in the Euro area and +1.3% in the EU in 2024, following a period of very low growth at the end of this year (+0.6% in both regions).

Despite high #inflation rates are expected to persist in 2023 (+5.6% in the Eurozone and +6.5% in the EU), a  gradual decline is expected in the coming years. By the end of 2025, inflation rates are expected to be slightly above the ECB target of 2%. The #labormarket remains strong, with the unemployment rate at a record low and participation rates at a record high, though signs of cooling are emerging. As Member States phase out fiscal support, the EU #governmentdeficit is expected to decrease moderately, and public investment is anticipated to continue increasing. The deficit forecast for 2023 is -3.2% in both the Eurozone and the EU, with a projected increase to 2.7% in 2025. Paolo Gentiloni emphasizes elevated risks to this #outlook amid the ongoing conflicts in Ukraine and the Middle East.

#USA: Regarding the US, we highlight two key topics: first, the moderation of prices in October to 3.2% for the overall index (from 3.7% in August and September), and to 4% for the core index, in both cases below expectations; and the economic performance, with a GDP growth rate that accelerated to an annualised rate of 4.9% in the third quarter. Both data are in line with a soft landing of the economy.

Focusing on some of the major eurozone economies…

#Spain: the European Commission has revised upwards its growth forecast to 2.4% for 2023 and lowered it to 1.7% (-0.2%) for 2024. These forecasts are similar to those published by EthiFinance Ratings a few days earlier.

#France: the economy is expected to grow moderately in 2023, at around +1.0%, due to inflation (flash October’s data remains high despite its moderation to +4.0% yoy since the +4.9% reached in September) - and financial conditions. For the coming years, GDP growth is expected to reach +1.2% in 2024 and +1.4% in 2025. On the debt side, the government deficit is expected to remain above the 3% target (2023: -4.8% ; 2024: -4.4%) and debt to GDP is expected to remain around 110% over the next three years.

#Germany: German GDP is expected to decline by -0.3% in 2023. Mainly due to a loss in purchasing power and to high tightening of financial conditions. Moreover, as we have observed in some PMI indicators - mentioned in previous macro bulletins-, foreign demand has been less favorably than the previous expectations. Nevertheless, it is expected to recover in 2024 & 2025 at a path of 0.8% & 1.2% respectively. Public finances remain on a path of fiscal consolidation with a gradual decline in government deficits and debt-to-GDP ratios.

#Portugal: Last Friday we affirmed our BBB+ rating with a stable outlook. Economic growth is expected to slow down in 2023 (+2.2%) compared to 2022, while the labor market has remained robust amid record high employment and activity rates. GDP growth is set to gradually recover over the upcoming years, as inflation is projected to moderate further, even it will reach in 2025 an inflation more related to the ECB’s target (2025: +2,4%). Portugal’s general government balance is forecast to reach a surplus of +0.8% of GDP in 2023, to later narrow over the following years. In addition, debt-to-GDP ratio is expected to be also on the fiscal path consolidation in 2025 (97,2%).

#ESG: The WMO's Greenhouse Gas Bulletin, in its most recent report of November 15, highlights the fact that in 2022 a new record in greenhouse gas emissions was reached, evidencing significant increases in the three main gases (carbon dioxide, methane and nitrous oxide). This upward trend, also projected for the current year, is far from meeting the temperature limitation targets set out in the Paris Agreement, according to WMO and UN Climate Change, who also point to the inadequacy of current climate action plans at the national level. In addition to their climatic implications, these emissions have an impact on the increase of extreme weather events, representing a risk for countries through different channels of impact on their economy and public finances. In this regard, the IMF reports a 5% reduction in maritime trade in 2023 due to droughts in the Panama Canal, and expects this trend to persist in the coming year, affecting both the economies dependent on such trade and the prices of some goods.