MacroEconomic Bulletin - First half of February 2024

The global economy is showing signs of recovery, albeit a slow one. In this sense, the European Commission's recent economic forecasts anticipates a slowdown in the euro area's economy this year (0.8% vs 0.5% achieved in 2023), with an expected improvement in 2025 (to 1.5%). Despite a decreasing inflation rate, it's slowing down with expected rises in the first half of the year. The labour market remains robust, but the youth unemployment rate is worryingly high.

The January #PMIs, leading indicators of economic activity, hint at a positive beginning to the year. The Global Composite PMI increased to 51.8, from 51.0 in December. Emerging markets, especially the BRIC countries, showed a strong performance. However, the eurozone still lags, remaining below the economic expansion threshold of 50. There were clear regional differences. Italy (50.7) and Spain (51.5) demonstrated evidence of economic expansion, while Germany (47.0) and France (44.6) experienced worsening contractions, albeit with their PMIs still above 2023 lows. Lastly, the US economy witnessed growth in output and demand, coupled with easing price pressures, leading to a Composite Index of 52.0, an increase from 50.9.

Regarding inflation, beginning with the #US, the most recent data indicates that the #headline rate decline trajectory has begun to moderate. Contrary to the consensus prediction of a 2.9% year-on-year inflation rate in January, the preliminary data showed no change 3.1%. Core inflation stayed at 3.9%. Conversely, the #eurozone's preliminary inflation rate dropped to 2.8% year-on-year in January, significantly lower than December's 3.8%, with services being the largest contributor. Core inflation fell to 3.3%, the lowest level since March 2022. We maintain our forecast for the first interest rate cut to occur during the second half of the year.

In relation to the #labor market, as of the close of 2023, the eurozone's unemployment rate was unchanged from November at 6.4%, matching the record low for the bloc and compared to 6.7% in December 2022 and 7.0% in December 2021. This signifies a reduction of 369,000 workers from December 2022, stoking fears of wages growth contributing to inflation. However, the situation is worrying for workers under the age of 25, with an unemployment rate nearing 15%.

#Spain: The tourism sector demonstrated resilience in 2023. There was a 24.7% surge in spending by non-resident tourists compared to 2022, which marked an 18.2% increase from the figures recorded in 2019. This impressive performance highlights the substantial contribution of the #tourism sector to Spain's economy, culminating in a record-breaking year. However, the #industrial sector did not fare as well, being more vulnerable to the disruptions experienced in 2022 and 2023, and ultimately ended the year with a 0.8% decline in output. The European Commission anticipates a GDP growth of 1.7% in 2024 and 2% in 2025, which aligns with our current forecasts.

#France: In terms of the #labor market, in Q4 2023 the unemployment rate stood at 7.5%, stable compared to Q3 2023 and 0.4 pps above its level at the end of 2022. On the other hand, the activity rate increased by 0.3 pps over the quarter to 74.1% of the people aged between 16 and 65, to its highest since INSEE started measuring it (1975). For 2024 the European Commission foresee a GDP growth rate of 0.9% yoy and 1.3% for 2025.

#Germany: Flash data show that #CPI inflation stood at 2.9% yoy in January 2024 (3.7% in December 2023). The core inflation rate was 3.4%, showing that underlying inflation remains high. Concerning GDP growth, the European Commission anticipates a rate of 0.3% for 2024 and 1.2% for 2025.

#Portugal: The #CPI showed an increase in January, primarily due to rising electricity costs and the termination of VAT exemptions on essential food items. As a result, headline inflation was 2.3% year-on-year, significantly higher than the 1.4% rate recorded for December. Despite this, core inflation continued its downward trend, hitting 2.4% yoy (down from 2.6% in December). The European Commission forecasts a GDP growth rate of 1.2% for 2024, with an expected increase to 1.8% in 2025.The Portuguese #labor market concluded 2023 with an increase in unemployment. Even though employment grew by 2% in 2023, it was not enough to counterbalance the 8.6% rise in unemployment, which pushed the annual unemployment rate to 6.5% (up from 6.1% in 2022). Finally, the Portuguese Labor Force Survey also highlighted the country's dedication to #ESG standards. As part of the Portugal 2030 Strategy, the goal was to provide upper secondary education to 90% of the population aged 20 to 24 by 2030. The current rate is 87.3%. Similarly, the 2025 target was for 20% of unemployed adults aged 25 to 64 to participate in education or training activities. The current rate is 17.9%.

#ESG: Eurostat recently published updated statistics on the performance of European Union countries in relation to Sustainable Development Goals (SDGs): SDG11 - Sustainable Cities and Communities - and SDG12 - Responsible Consumption and Production.

SGD11: In 2022, the proportion of renewable energy in transport in the EU increased by 0.5 percentage points, reaching 9.6% of total consumption. Despite this, the 29% target for 2030 remains distant, with significant regional variations. Sweden has already met the target, while Croatia is trailing with only 2.4%. Among our focus countries, most are near the EU average, with Germany recording the most significant increase (1.9 pps).

As for SDG 12, data from 2022 on municipal waste and its treatment shows a decrease in per capita waste generation of 4% from 2021. However, the proportion of waste recycled has dropped by 1.1 pps in most countries, except for Lithuania, which saw a 4-percentage point improvement. The EU's goal of recycling at least 55% of municipal waste by 2025 is yet to be achieved, with the current average standing at around 48.6%. Only Germany and Slovenia have met this target, recycling 69.1% and 62.6% of their waste respectively.