MacroEconomic Bulletin - Second half of February 2024


#GlobalEconomy: Germany has become the world's third-largest economy, surpassing Japan on the basis of 2023 nominal GDP data. Both nations faced economic issues in 2023, with Japan's consumer demand falling and Germany dealing with industrial and investment challenges. Although for 2023 Japan registered positive growth of 1.9%, compared with a contraction of 0.3% for Germany, its economy is technically in recession, having contracted by 2.9% in 3Q23 and then by 0.4% in 4Q23; by contrast the German economy has so far avoided recession according to the classic definition. Despite its economic downturn, Germany's higher nominal growth and an unfavourable yen/dollar exchange rate for Japan pushed Germany's GDP to $4.5 trillion, just above Japan's $4.2 trillion. The future depends on monetary policy normalization impacting exchange rates and each nation's economic performance; but in any event everyone expects India's economy to overtake both by the decade's end.

The #USA has revised down its Q423 year-on-year GDP growth rate to 3.2% from the previous 3.3%. The change mainly reflects a decrease in private inventory investment, partially offset by increased state and local government spending. According to the Bureau of Economic Analysis, the slowdown compared with 3Q23’s 4.9% was largely due to a decline in private inventory investment, plus lower federal government and consumer spending. In 2023, the economy grew by 2.5%, up from 2022's 1.9%, despite tighter monetary policy. Furthermore, the US is growing above the 1.8% rate which the Federal Reserve considers to be the non-inflationary growth rate.

#Eurozone headline inflation fell to 2.6% yoy in February 2024 from 2.8% in January, as per Eurostat's flash estimate. Main components show energy prices at -3.7% (previously -6.1%), and food, alcohol, and tobacco prices up by 4.0% (5.6% in January). The headline rate is nearing the ECB’s 2% target, but core inflation remains higher, as does services inflation (3.9% in February). The core rate dropped, to 3.1% from 3.3%, its lowest since March 2022's 3.0%. These figures surfaced a week before the ECB's meeting to decide on interest rates. At EthiFinance Ratings, we don't foresee a rate cut yet, but predict one before year-end if headline inflation keeps moderating towards the ECB's target.

#Spain: Despite a 2022 household income rise (8.1%), inflation-driven costs have increased poverty, with the #AROPE rate now at 26.5% (up from 26%). This is largely due to severe material and social deprivation increase (9% from 7.7%). Meanwhile, headline #inflation moderated in February (flash estimate), falling to 2.8% from January's 3.4%, primarily due to lower electricity and food prices. Core inflation, though more resilient, also decreased to 3.4% from 3.6%.

#France: #GDPgrowth for Q423 has been revised to +0.1% (0.0% in Q323). Household purchasing power per unit increased by 0.6% after -0.1%, and the savings rate rose slightly. In 2023, France's economy grew by 0.9%, largely due to a Q223 increase of 0.7%, but below the projected 1% by the government and less than 2.5% in 2022. The headline #inflation flash estimate was 2.9% yoy for February, below January’s 3.1%. This is explained mainly by a slowdown in food prices and the base effects, but on a monthly basis inflation has increased (0.8% after ‑0.2% in January) due largely to energy prices.

#Germany: The expected headline #inflation rate for February 2024 is 2.5% yoy, the lowest since June 2021's 2.4%. Food price increases slowed to 0.9% from February 2023's 3.8%, and energy prices were 2.4% lower. This will result in real wage increases for employees, aiding the slowing economy. The #labor market shows consistent growth, with employment in January 2024 up by 0.5% or 232,000 from January 2023. The trend is positive, with a steady 0.5% yoy growth from September to December 2023.

#Portugal: #GDP growth for 2023 is put at 2.3%, primarily supported by domestic demand, especially consumption and investment. External demand's contribution was minor. Despite being positive, it's a material slowdown from 2022's 6.8%. This deceleration is expected to continue in 2024, with the European Commission forecasting1.2%. Meanwhile, headline #inflation is on a downward trend, now at 2.1% (down from 2.3% in January), mainly due to food prices, while energy prices rose. Core inflation follows a similar trend, now at 2.2% (down from 2.4%).

#ESG: The United Nations' Sustainable Development Goal 8.6 aims to reduce youth inactivity to below 8% of young people (aged 16-24). However, countries like Italy (26%), Spain (19%), France (15%), and Portugal (14%) significantly exceed this target, indicating a substantial gap. Conversely, Norway and the Netherlands have achieved this goal. Today's youth face obstacles like unemployment, temporary jobs, and underemployment. Additionally, from 2013 to 2022, youth wages have only increased by 7%, despite high inflation rates. A key issue is the mismatch between education and labor market demands, affecting youth employability and negatively impacting productivity, innovation, and demographic growth, crucial for a robust economy.