MacroEconomic Bulletin - First half of September 2023


The #ECB decided to raise interest rates again to +4.5%, its highest level since 2001, at its meeting on Thursday, September 14. Hence, the ECB is prioritizing the inflation target with its decision to raise the price of money for the tenth consecutive month, despite the low growth rates expected for the European economy at the end of this year and 2024. Nevertheless, in this case the decision has not been totally unanimous, alerting to the possibility of pauses in the future. From EthiFinance Ratings we expect a stop of rate hikes for the next ECB meeting, as the decisions of a restrictive monetary policy are already having an impact on the real economy (postponing consumption decisions, downward PMIs... ), and even in countries such as Germany an economic recession is already forecast for the end of this year.

In addition, the institution has revised its #macroeconomicforecasts for the euro area, estimating lower growth and higher inflation, especially in the coming year, adding fuel to stagflation warnings. Thus, the ECB estimates that the economy will grow by +0.7% (+0.9% previously) in 2023 and +1.0% in 2024 (+1.5%), a low pace and below potential, while it forecasts inflation at +5.5% in 2023 (+5.4%) and +3.2% in 2024 (3%). Likewise, the European Commission portrays a similar picture in its summer forecasts, albeit with a more optimistic outlook. As such, it expects growth to stand at +0.8% in 2023 and +1.3% in 2024, and inflation, while remaining high, is revised downwards to +5.6% in 2023 and +2.9% in 2024.

Focusing on some of the major economies, the picture is similar, with inflation levels holding up, even rebounding, while forecasts point to a weak near-term growth:

#Spain:  INE confirms August #CPI at +2.6% yoy, up from +2.3% in July, driven by transportation costs, especially fuel (core inflation fell by one tenth of a percentage point to +6.1%). This upward trend is expected to continue as government anti-inflation measures conclude, with EthiFinance Ratings estimating annual inflation at +3.2% yoy.  In addition, the European Commission has raised its #2023growthforecast for Spain to +2.2% (from +1.9%) due to a stronger first half of the year.  Nevertheless, EthiFinance Ratings forecasts a slightly lower growth at +2.1% due to the expected slowdown in the 2H of the year, caused by weaker economic activity in major trading partners, tighter financing conditions and softer labor dynamics. This slowdown has already been reflected in other indicators, such as the contraction in the #ServicesPMI (49.3 vs 52.8 in July) and a drop in #laborenrollment  (185,384 workers) in August, with the end of the summer season.

#France:  #Inflation rebounded in August to +4.9% you (0.1 pp higher than advanced, +4.3% in July), due to higher energy prices, particularly fuel prices. Nonetheless, core inflation did decline, remaining below the overall figure (+4.6% versus 5.0% in July). For the year as a whole, the European Commission has revised upwards its inflation forecast to +5.6%, which will still remain high due to the decision to increase energy prices, the end of the fuel rebate and pass-through effects. Nonetheless, #economicgrowth has been revised upwards to +1.0% (+0.7% previously), due to the rebound of 2Q, where it grew +0.5% qoq vs. the +0.1% expected, favored by the external demand. Still, the forecast for a slowdown in 2H of the year is maintained, a fact that continues to be reflected in the contractions of the expectations indices, with #PMIs contracting again in August (both Services and Manufacturing PMIs at 46.0) .

#Germany: Advanced German #inflation is confirmed at +6.1% (+6.2% in July), its lowest increase since last May. However, food prices (+9% vs. +11% in July) remain the main driver of inflation and, together with rising energy prices (+8.3% vs. +5.7% in July) exceeds overall inflation. Regarding the #PMIss indicators, the downturn in Germany's manufacturing sector extended into August, reflecting a broad-based reduction in demand and new orders continued to fall sharply. Finally, as for the #economicforecast, the economy is now expected to contract by -0.4% in 2023 (+0.2% Spring Forecast), mainly due to a weak overall consumption and a decline in construction investment, in addition, since January 2023 confidence indicators in the manufacturing sector are on a downward trend.

Meanwhile in the #United States, its economy suffered a rebound in #inflation to +3.7% in August (+3.2% in July), one tenth higher than expected. On a monthly basis, the gasoline index was the largest contributor to the monthly index, accounting for more than half of the increase (+10.6% vs. +0.2% in July, mom). The positive data comes from core inflation, which has slowed to +4.3% (+4.7% in July). Amid rising inflation, the Fed's decision on a possible interest rate hike at its September 20 meeting is challenging. Economic indicators, like the the #GlobalSectorPMI, shows a loss of impulse in all sectors except Consumer Services, with manufacturing in continuous contraction since November 2022, marked by a significant drop in new orders. These signals imply that while inflation may push for rate hikes, the weakening PMI data suggests a production slowdown, adding complexity to the Fed's decision-making process.