Intesa Sanpaolo: Euro area – Better-than-expected confidence surveys in November, but the outlook remains weak.
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Weekly Economic Monitor – 25 November 2022
Intesa Sanpaolo – Research Department
The flash estimates of the PMI indices and the European Commission’s first reading of consumer confidence, as well as national surveys in Germany and Italy, surprised on the upside, suggesting less downside risks on economic activity in the short term. We continue to believe that a GDP contraction between the end of 2022 and the beginning of 2023 is likely, but this may turn out to be milder than expected a few weeks ago. Risks could, however, be postponed to a possible resurgence of the energy crisis in the central part of 2023, on the back of the need to replenish gas stocks after the winter period.
United States – 2023: the time is ripe to look ahead to the next rate cycle. The minutes of the November FOMC meeting confirmed the likely transition to a phase of rate hikes modulated not only by current data but more importantly by the expected effects of ongoing tightening. The real uncertainty now concerns the features of the upcoming recession and the timing of the start of the rate cutting cycle: all economic variables (cycle, inflation, wages) are expected to turn in 2023, perhaps also rates may join in.
The week’s market movers
In the euro area , the focus of the week will be on the November flash estimate of consumer prices. We expect a moderate slowdown in inflation in Italy and the Eurozone as a whole, compared to an increase in Germany and France. Labour market data should show stability in the unemployment rate in the Eurozone (in October) and Germany (in November), and a rise in Italy (in October). The European Commission’s confidence indices and final manufacturing PMI estimates will conclude the November round of economic surveys by confirming the trend of generalised recovery of the confidence. In France, we expect goods consumption to have declined again in October.
This week in the United States the focus will be on the main labour market data and on a speech by Powell on the economic outlook. Non-farm payrolls should rise at a solid, although slowing, pace again in November, and the unemployment rate is forecast stable at 3.7%, in the wake of a recovery of the labour force, in line with employment growth. The October Jobs Openings and Labor Turnover Survey will also be in the spotlight, with information on the trends of demand and supply. In October, personal spending is expected to have risen sharply, driven by both goods and services, in the face of more limited personal income growth, resulting in a further decline of the savings rate. The core deflator is forecast higher by 0.3% m/m, but the monthly dynamic should reaccelerate in November. As regards November data, consumer confidence should worsen further, and the manufacturing ISM is expected to enter into recessive territory, signalling a slowdown of demand, inventory replenishment, and easing supply-side bottlenecks. Lastly, the second estimate of 3Q GDP should show an upward revision to 2.8% q/q ann.
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