Intesa Sanpaolo : Next week sees the November round of confidence surveys, from which we expect to see signs of ongoing weakness in the Eurozone, and of a (moderate) cyclical slowdown in the US between late 2023 and early 2024, after the robust expansion of the Summer months.
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Weekly Economic Monitor – 17. November 2023
Intesa Sanpaolo – Research Department
The recent and expected path of inflation, and the statements by the major central bankers, confirm that the cycle of interest rate hikes on both sides of the Atlantic should be over, but also that the Fed and the ECB are unlikely to start an accommodative cycle already in early 2024.
Eurozone. The flash PMI and national surveys (Ifo in Germany, Insee in France and BNB in Belgium), as well as the Commission’s preliminary consumer confidence figure, will be released next week. Although some indicators may show a modest recovery (notably the Ifo, services PMI and household morale), the overall message coming from the November surveys would be a confirmation of the substantial stagnation of the economy (with the risk that the marginal contraction in GDP seen in the Summer may continue; the likelihood of a broader recession remains non-negligible but all in all moderate, in our view).
On Tuesday 21st the EU Commission’s opinion on the Budget Planning Documents is expected: on the basis of the new projections published this week in the Autumn Economic Forecast, several countries, including France, Italy, Spain and Belgium, are at risk of Excessive Deficit Procedure, since according to the Commission they will maintain a deficit above 3% until 2025 (and in all these countries, with the sole exception of Spain, the debt is seen as rising over the next two years). It is possible that an extraordinary Ecofin will be convened on Thursday 23rd to resume negotiations on the reform of EU fiscal rules, but it cannot be ruled out that everything will be postponed to the next meeting on 8th December. Early general elections are scheduled to be held in the Netherlands on 22 November, after the Rutte cabinet collapsed last July 2023.
In the meantime, the ECB Governing Council members expressed a bias towards ruling out rate cuts over a two-quarter horizon; beyond this period, the views expressed varied. In our baseline scenario, the first cut takes place in September. The scenario discounted by the markets (a start of cuts as early as Spring) is likely to call for a moderate recession as early as this quarter. Next week (Thursday) the account of the ECB’s October meeting will be published, and the intense flow of speeches from Council members will continue.
United States. The main event of the week out was the October CPI, which fell again after rising in previous months (the index was stable for the month and down to 3.2% from 3.7% year-on- year); the core CPI also surprised slightly downwards, slowing to 0.2% m/m and 4% y/y; the CPI excluding food, energy and housing services showed a one-tenth increase in October (as in September, decelerating from 0.3% m/m in August) and slowed to 2% y/y. The PPI also surprised on the downside. These data reinforced the expectation that the cycle of official rate hikes in the US is also over.
In the United States as well, in the coming week the main data will be the November flash PMIs, which are expected to be little changed; durable goods orders are seen falling due to the correction in civil aircraft. The data released over the past few days (October’s retail sales and industrial production above all) show that there are signs of less economic momentum than the peak seen in the Summer months, but growth is still expected to be well into positive territory in the current quarter, which does not seem consistent with a Fed rate cut as early as the opening months of 2024. Next week (Tuesday) the minutes of the November’s FOMC will also be published.
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