Intesa Sanpaolo: Our baseline scenario, which is close to the consensus scenario, points to a re-achievement of price stability without particular losses in terms of production, and with real interest rates at still contained levels.
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Weekly Economic Monitor – 23 Dezember 2022
Intesa Sanpaolo – Research Department
However, the risk of further monetary restriction being needed could materialise in many alternative scenarios. In fact, it is not enough for inflation to fall, as it will surely do in 2023: it depends on how much it will fall.
The next two weeks’ market movers
In the euro area , the closing week of the year will be rather quiet in terms of data releases, the only figure due is M3 money supply, expected to post a further moderate slowdown in November; on Thursday 29, the ECB’s economic bulletin will also be published, and is expected to confirm the hawkish message delivered during the latest Governing Council meeting. The first week of 2023 will bring the release of several indicators that will shed light on the state of the cycle and inflation dynamics at the end of 2022.
The focus will be on flash December consumer prices estimates, harmonised inflation should decline in both Germany (to 10.7% from 11.3% in November) and Italy (to 12.2% from 12.6% previously); in France, harmonised inflation is instead forecast stable at 7.1% for the third consecutive month. As a result, Eurozone headline inflation should drop to 9.7% from a previous 10.1%, as opposed to further core inflation (net of energy and fresh food) growth to 7% from 6.6% in November.
The European Commission’s sentiment surveys, due for release on 6 January, should highlight an improvement in consumer and business confidence in December, in line with the findings of the national surveys already released. The initial estimate of Italian PMIs should also show an improvement in the closing month of the year. In any case, the level of the main Eurozone confidence indices should remain consistent with a moderate recession at the turn of the year.
Lastly, in Germany data on factory orders are expected to drop back in November after increasing unexpectedly in October, while in December the unemployment rate is seen stable at 5.6% (the trough in the present cycle was marked at 5% in the spring months).
In the United States , no noteworthy data releases are scheduled in the closing week of the year. In the first week of January, on the other hand, a host of important releases are lined up, with likely of weakening demand and a still tight labour market. Focus, however, will be on the minutes of the December FOMC meeting, that should provide clearer information on the distribution of opinions within the Committee on the risk of an excessive monetary restriction. Overall, the minutes should support the stance outlined by Powell, with the commitment to act as necessary until the wage trend becomes compatible with price stability. The message should stay generally hawkish, on a par with the tones used during the press conference.
As regards data, December ISM indices should weaken again, with the manufacturing index still in recessive territory, at 48 from 49, and the services index down to 54 from 56.5, confirming the deepening of the growth slowdown. Labour market data for December should be solid, once again, with payrolls on the rise by 180k, the unemployment rate of 3.8% and hourly wages on the rise by 0.4% m/m. Construction spending should drop further in November, by an estimated -0.3% m/m.
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