MacroEconomic Bulletin - October 2022

1. GLOBAL OUTLOOK

The US economy moved away from technical recession in the third quarter. After reporting two consecutive declines in the first and second quarters of 2022 - -1.6% and -0.9% yoy, respectively- US GDP rebounded to +2.6% yoy (+0.6% qoq), above the +2.4% expected by the Bloomberg consensus. The third quarter performance is strongly related to the decrease in the trade deficit, due to the growth in exports and a drop in imports. This favorable figure, together with the resilience observed in the labor market -the unemployment rate decreased to 3.5% of the labor force in September- point to further ambitious rate hikes from the Fed at this week's meeting, with interest rate hikes remaining one of the main risks to the US economy in 2023.

China's GDP rebounds in the third quarter. After the slowdown observed in the second quarter of the year (-2.7% qoq and -0.4% yoy), the Chinese economy rebounded in the third quarter, growing by +3.9% (above the 3.3% estimated by the Bloomberg consensus) both qoq and yoy, boosted by the statistical effect. In this regard, in Q2 the Chinese economy was still affected by certain massive shutdowns in some major cities, and on a year-on-year basis, in Q3 2021 the economy was affected by bottlenecks in addition to other consequences from its zero COVID-19 policy. However, risks remain for the Chinese economy -such as the crisis in the real estate sector or the effects of the zero COVID-19 policy- for which the IMF estimates the country's growth at +3.2% yoy in 2022, below the Chinese government's target of +5.5%.

German GDP holds up in Q3 but the government confirms recession scenario in 2023. While a decline was expected in the third quarter (-0.4% qoq), German GDP increased by +0.3% qoq (+1.1% yoy), higher than that recorded in the second quarter (+0.1%). This growth was driven by the strong performance of private consumption. Nevertheless, the German government has presented its projections for next year, confirming Germany's entry into recession in 2023, with an estimated GDP decline of -0.4% yoy. In addition, the government also advanced an inflation forecast for next year, which would remain elevated (+7.0% yoy). This scenario is based on the economic repercussions of the war in Ukraine as well as the disruption of Russian gas supplies, which will have a significant effect on German industry and consumption.

New interest rate hike by the ECB. Following the sustained rise in inflation in the euro zone after its last meeting -it reached 10.0% in September- the European Central Bank has announced a further increase of 75 basis points, which was in line with market expectations. As a result, the deposit rate stands at 1.5%, a level not recorded since 2009, falling within the lower range considered by the ECB as neutral monetary policy -between 1.5% and 2.0%-. The ECB has also announced that it will modify the TLTROs to regulate banks' windfall profits. Nevertheless, inflationary pressures are still high in the euro zone, so further hikes are expected at its upcoming meetings.

2. SPANISH OUTLOOK

Spanish GDP growth loses steam in the third quarter of 2022. In this sense, the Spanish economy has registered a growth of +0.2% qoq and +3.8% yoy, which was below the +0.3% forecast by the consensus and the +0.4% estimated by EthiFinance Ratings. On a quarter-on-quarter basis, we highlight the good performance of household consumption (+1.1%) and Gross Capital Formation (+1.4%), although exports moderated (+1.3%) after the expansion in the second quarter (+4.9%). By sectors, all of them contributed positively except construction (-0.1% qoq) which, together with other indicators -investment in housing and other buildings (-0.1%) or real estate activities (-2.5%)- could point to a slowdown trend in real estate.

Moreover, inflation decreased considerably in October to +7.3% yoy (Flash estimate; +8.9% in September). Nevertheless, this decrease is mainly explained by the statistical effect of the already high energy prices in October 2021, while it increased month-on-month (+0.4%, -0.7% in September). For its part, core inflation remained stable, albeit at high levels (+6.2% yoy). Likewise, the IPRI decreased by almost 7.5 points in September to +35.6%, although this significant decrease is influenced by the statistical effect -in September 2021 the IPRI was +23.8%- we note the moderation of the upward trend, with a neutral month-on-month growth (+2.7% in August).

On the other hand, in the third quarter, employment increased by 77,700, reaching 20.5 million employed persons for the first time in 14 years, this rise was mainly concentrated in the service and industry sectors, while agriculture and construction decreased. However, the number of people unemployed also increased, by 60,800, raising the unemployment rate to 12.7% of the labor force (12.4% in Q2), although it remains below the levels seen before the pandemic.

3. FRENCH OUTLOOK

French GDP evolution decelerated (+0.2% qoq and +1.0% yoy, Flash estimate), after the second quarter rebound (+0.5%). On a quarter-on-quarter basis, domestic demand was the main contributor, while external demand contributed negatively given the slowdown in exports. Furthermore, investment was the main contributor to growth (+1.3% qoq), while household consumption remained neutral.

Inflation breaks with the moderation trend started in August. In this sense, inflation increased to +6.2% in October (Flash estimate; +5.6% in September), boosted by energy, food and manufactured good prices. In addition, in month-on-month terms, it also increased (+1.0% after -0.6% in September), due to the wake in oil prices. Likewise, industrial products continue to exert an upward pressure, with an increase in the Industrial Price Index of +25.8% in September (+0.2% over a month), although it presented a slight moderation (+27.8% in September), it was driven by the statistical effect.

In addition, some expectation indicators have been released that point to a slight improvement in the perception of the economic outlook, although it remains in a pessimistic range. Thus, consumer confidence improved slightly in October, but remained at a low level (82 points), due to a lower pessimism about the standard of living, but the perception of major purchases remained negative. On the supply side, the French business climate remained stable, with a score of 102, although the outlook for all sectors has improved, but that of services has worsened considerably.

4. PORTUGUESE OUTLOOK

Portuguese GDP growth remained positive in the third quarter, with quarter-on-quarter growth of +0.4% (Flash estimate; +0.1% in the second quarter), and +4.9% year-on-year (+7.4% previously). In quarter-on-quarter terms, we highlight the good performance of domestic demand, with an increase in consumption despite the context of high inflation.

The upward trend in prices continued in October. According to the published by the INE, the CPI continued to advance to +10.2% yoy (Flash estimate; +9.3% in September). In this regard, energy and food were again the main drivers, with an increase in energy prices of +27.6% yoy (+22.2%) and food (+18.9% and +16.9% previous). Moreover, core inflation followed a similar trend, increasing to +7.1% yoy (+6.9% in September). However, the Industrial Price Index moderated in September (+19.6% vs. +22.4% in August; -0.2% mom), although it continues to be highly influenced by the energy grouping without which it would be at +15.3%.

On the other hand, the indicators of expectations continue the downward trend that began with the outbreak of the war between Russia and Ukraine. Consumer confidence worsened in all aspects of the survey, reaching levels close to those recorded during the pandemic. On the supply side, the worsening of expectations was widespread across all sectors, although most marked in retail trade and services.