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2023/07/07 / Erste Group Research

Slight brightening of economy expected

The reduction in inventory capacities dampened growth in global industry in the first half of the year. The opening of China's economy also failed to provide the expected stimulus to the global economy. However, we forecast a slight improvement in economic momentum in the second half. On one hand, because the reduction in inventory capacities should come to an end, resulting in an improvement in the order situation for industry. On the other hand, consumption should gain some momentum, due to a gradual improvement in the real income situation (thanks to falling inflation rates).

From a regional perspective, Germany's recession in the winter half-year in particular weighed on the Eurozone economy. Due to the high importance of industry, Germany suffered particularly badly from the global reduction in inventory capacities. By contrast, Spain and Italy supported growth in the first half. Both countries continue to benefit from the inflow of substantial funds from the EU recovery plan. With the end of destocking, Germany's economy in particular should recover in 2H. We therefore expect the Eurozone economy to return to slight growth in the summer months. Due to a very weak start to 2023, we expect GDP growth of only 0.5% for the Eurozone.

Thanks to rapidly declining momentum in energy and food prices, Eurozone inflation fell to 5.5% y/y in June. By contrast, the core rate is only beginning to stabilize at an excessively high level of 5.4% y/y. The inflation dynamic in services in particular is proving to be stubborn. There is therefore a risk that the core inflation rate could remain at too high a level for longer than expected so far. We therefore forecast only a slight decline in inflation to 5.6% for 2023 as a whole.

Data so far suggests that the US economy will continue to grow solidly in 2Q, although sharply higher interest rates and real income losses have long weighed on businesses and households. This spring, another negative factor has been added. The turmoil in the US banking sector in March and April has led to weaker lending. We expect the aforementioned factors to have an impact and the US economy to slow down. We expect inflation to move sideways until the end of the year. In the US, it could still take some time before the central bank's inflation target of 2% is reached. We do not expect this to happen until around mid-2024.

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General information

AuthorErste Group Research
Product nameEconomic Outlook Eurozone, USA
Topic in focusMacro/ Fixed income
Economy in focusEurozone, United States
Currency in focusEuro, US Dollar
Sector in focus-


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