MacroEconomic Bulletin - First half of August 2023


  • China: it seems that the fall in export prices has pushed the consumer price index into negative territory, with a contraction of 0.3%, which joins the negative trend already observed in the previous month, but it is still too early to talk about a generalized deflation. The key here will be to know whether this behavior will help to offset inflation in Europe and the US. We think so, in two ways, firstly because the lower activity will exert less pressure on oil prices, and secondly, because of the export component.
  • US: In line with expectations, US inflation remained at 3.2% in July, just 0.2% higher than in June, partly explained by the base effect and the negative contribution of energy (in its different aspects) and the automobile market. This data suggests a new pause in rate hikes in September. However, the producer price index - a leading indicator of inflation - has surprised, for the worse, with an increase of 0.3%, so it is feasible to expect inflation increases in the coming months.
  • Europe: A few days ago, we got the advance data for July (5.3%), slightly lower than in June (5.5%). Likewise, the inflation data reported in our previous bulletin for some of the major economies of the euro zone are confirmed. However, the performance of the 5-year swap suggests that "things are going long". Let us not forget that not so long ago the ECB used this indicator to set monetary policy. In addition, as if that were not enough, natural gas futures rose again by almost 40% on fears of a supply cut from Australia. Although they remain far from the figures recorded at the beginning of the year, they show that uncertainty continues to permeate the market. Everything points to another rate hike in September.

Economic growth is cooling but are we in the beginning of a #stagnation period?

We think that risks in the euro zone come from two sources: on the one hand, from the demand side, which is still weak and negatively affected by inflation and interest rate hikes; and from the supply side, the manufacturing sector is not getting off to a good start in Germany, as evidenced by industrial production, which in June remained negative and well below consensus expectations. In addition, energy prices are increasing again and we are perceiving more uncertainties from gas supply from Australia.

Focusing in the main countries....

#Spain: The #labormarket, continued to advance favorably in the second quarter of the year. According to EPA data, both the number of employed (+2.95% qoq corrected series) and unemployed (-6.6%) presented positive figures, decreasing the #unemploymentrate to 11.6% (13.3% Q1). The increase in employment was widespread in all sectors except industry, which presented contractions, in line with the negative trend observed in industrial production. Thus, the IPI fell again in June (-3.0% yoy corrected series), maintaining contractionary rates since April.

#France: In the second quarter, the #labormarket remained virtually stable, where the #unemploymentrate recorded a slight increase Q2 to 7.2% (7.1% Q1), but private payroll employment continued to grow (+0.1% qoq) yet at a slower pace (+0.4% Q1). By sector, employment improved with respect to the previous quarter in industry and services, while it contracted in agriculture and construction.

#Germany: The July #inflation figure is confirmed, falling to +6.2% year-on-year from +6.4% in June. Food continues to be the main source of inflation with increases of +11.0%, although at a slower pace than a month earlier (+13.7%). Likewise, energy broke its downward trend of the past months and rebounded (+5.7% vs. +3.0% previously), due to the abolishment of the EEG surcharge in July 2022. Core inflation also remains high at +5.5% (+5.8%). Thus, we again highlight that these elevated inflation levels, together with the rebound observed in other economies, point to a higher probability of another interest rate increase after the summer.

#Portugal: After the good performance reported, the Portuguese #GDP slowed down in Q2, with a zero quarter-on-quarter growth, albeit maintaining a positive year-on-year rate (+2.3%). Although the breakdown is still unknown (as this is a flash estimate), the INE points to a slowdown in the foreign sector, offset by an improvement in domestic demand, which stands out given the developments observed in its neighbors, as discussed in our previous bulletin.  On the other hand, #inflation maintained a downward trend and registered a year-on-year variation of +3.1% in July (+3.4% in June), driven by the moderation of food and energy prices. Likewise, core inflation also declined to +4.7% (+5.3%).