House of Commons Vote, European Commission, and US Retail Sales

Yesterday the European Commission published their Autumn economic forecast, in which they indicated that there would be a “modest recovery ahead after a challenging year”. The headline takeaway is that the Commission downgraded EU and Eurozone growth by 0.2 percentage points over 2023, thereby projecting that growth will come in at 0.6% over the year. This modest reduction in the pace of growth comes as monetary conditions remain at some of their highest levels in decades with the main refinancing rate at a 22-year high of 4.5%. Hence, with Frankfurt continuing to try to bring inflation (currently at 2.9% across the EZ) down to their 2% target, a slowdown in growth in the near term may ease some of the headwinds they face in trying to achieve this.

Looking further ahead, the EC forecast growth to pick up in 2024 to 1.4% across the 27-member state union as a “steadily robust labour market, sustained wage growth and continued easing of inflation” feed into an uptick in consumption. The report also cited how public deficits will start to decrease as fiscal support for pandemic and energy related issues is phased out. The EU’s debt-to-GDP ratio is thus expected to fall to 83% by the end of this year, before continuing to ease to the pre-pandemic level of around 79% by 2019.

Interestingly, the Autumn Economic Forecast covered Bosnia and Herzegovina, Moldova and Ukraine, for the first time, given these countries’ status of EU Candidates. Here, the EC forecast Ukraine to have 4.8% growth over 2023 and 3.7% throughout 2024. (This of course follows their GDP falling just under 20% during 2022 given the implications of the full-scale Russian invasion).

Yesterday, US retail sales came in hotter-than-expected in another indication that the world’s largest economy shows signs of being more resilient than forecast despite tighter monetary conditions and a rising cost of living. Against expectations of a 0.3% contraction, retail sales fell only marginally by 0.1% on a month-on-month basis for October. While yesterday’s print surpassed expectations to the upside, yesterday represented the first monthly contraction since March. Amongst some of the areas of the US economy most hit was furniture stores and vehicle dealers which saw sales drop 2% and 1% respectively. Nevertheless, spending at health shops grew over 1% while sales grew at electronic shops and restaurants rose 0.6% and 0.3%, respectively.