01 February 2023
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Eurozone manages to record growth in Q4

By Edward Bell

The Eurozone’s economy managed to record growth of 0.1% in Q4 2022, better than market expectation for a decline in activity. France (see below) and Spain were among the main contributors to growth while Germany and Italy both recorded contractions in activity. Ireland also recorded strong growth in Q4, up by 3.5% q/q. The ECB meets later this week and is likely to hike rates by 50bps, precipitating more of a slowdown in growth and potentially pushing the Eurozone into recession.

France’s economy expanded by just 0.1% q/q in Q4 2022, slightly better than expected but another quarter of slow overall activity. Investment and a smaller drag from net trade as imports fell in Q4 helped to keep the French economy from contracting in the final months of last year. While the marginal increase in France outperformed the drop in activity reported by Germany earlier in the week, Eurozone activity overall looks open to substantial downside risks in 2023 with a recession likely to be a close run thing in many economies. Consumer spending in France fell by a steeper than expected 5.6% y/y in December as consumers held back in the face of persistently high inflation.

In the US, the employment cost index rose by 1% in Q4 2022 from the previous quarter, its slowest pace of growth for all of last year. The slowdown in the ECI follows on the slower pace of average hourly earnings released in the last nonfarm payrolls along with other indicators of slowing wage and price pressures. The broad slowdown in prices and wages will help to convince the Federal Reserve they can indeed move to a slower pace of monetary tightening, hiking by 25bps at today’s FOMC meeting. Elsewhere in the US, consumer confidence dropped in January to 107.1 driven by a decline in expectations for the economic outlook even as assessments of current conditions actually improved.

Saudi Arabia’s economy grew by 8.7% in real terms in 2022 according to preliminary estimates from the General Authority for Statistics. The oil economy rose by 15.4% as Saudi Arabia increased production in line with higher targets from OPEC+ while the non-oil economy increased by 5.4% y/y. The increase in oil output was concentrated in the front half of the year with greater than 20% annual growth in Q1-Q2 before slowing to 6.1% growth y/y in Q4. The non-oil sector expanded by 6.2% in Q4. This year we forecast that GDP growth will slow to 3.1% as oil GDP gains moderate, although this remains more bullish than the revised IMF forecast for Saudi Arabia published yesterday, whereby the Fund projected growth of 2.6% in 2023.

Net foreign assets at the Saudi Central Bank fell by USD 12.3bn in December to USD 439.5bn. Reserves have been steady around the USD 430-USD450bn mark through the past two years despite surging oil prices and a current account surplus as Saudi Arabia has supported regional governments facing balance of payments crunches with central bank deposits in 2022. Broad money supply was up 8.1% y/y at the close of 2022, compared with 7.4% in December 2021. Meanwhile, KSA credit data for December showed that total private sector credit growth was up 12.6% y/y compared with 15.4% in December 2021, with giga project development keeping demand strong. Total consumer loans grew 5.4% y/y in Q4 with a 26.0% rise in tourism and travel loans helping to offset an ongoing decline in borrowing related to real estate and cars and equipment. Total consumer spending (point of sale transactions and ATM withdrawals) rose 5.6% y/y in 2022 compared with 7.0% growth in 2021..

Retail fuel prices in the UAE will increase almost 10% m/m in February following a 3.1% m/m rise in average Brent oil prices in January. Mid-grade petrol will rise to AED 2.93/litre and higher octane fuel will increase by about the same amount to AED 3.05/litre. Diesel prices will rise by almost 3% to AED 3.38/litre. On an annual basis, mid-grade petrol will be up by about 3.9% in February, the smallest annual increase since March 2021 when prices were still declining in y/y terms.

Turkey’s trade deficit widened to USD 9.7bn in December 2022, smaller than market estimates. For 2022 as a whole, the trade deficit widened by 137% to USD 109bn as a result of large increases the cost of fuel imports—up by 91% y/y—along with higher imports of gold and large increases in the costs of grains and fertilizer imports.

Today’s Economic Data and Events

  • 9:00 IN manufacturing PMI Jan: forecast 49.8
  • 11:00 TU manufacturing PMI Jan
  • 14:00 EC CPI y/y Jan: forecast 8.9%
  • 17:15 US ADP employment change Jan: forecast 180k
  • 19:00 US ISM manufacturing Jan: forecast 48
  • 23:00 US FOMC decision upper bound: forecast 4.75%

Fixed Income

  • US Treasuries pulled stronger the day ahead of the FOMC meeting, perhaps abetted by the slower pace of wage growth and the dip in consumer confidence fading some of the more aggressive expectations from the Fed for this year. Yields on the 2yr UST fell 3bps to 4.2011% while the 10yr yield also dropped 3bps to 3.5069%. Since the start of the year, Treasuries have rallied steadily with yields on the 2yr UST dropping by 22bps year-to-date and the 10yr yield falling by 37bps ytd.
  • European bond markets generally also settled higher with yields on 10yr bunds down 3bps at 2.28% and 10yr French yields closing lower by nearly 4bps to 2.746%. Gilt yields ended the day near flat.


  • The dollar closed lower against nearly all peers overnight in the lead up to today’s FOMC meeting. A 0.2% drop in the DXY index brought the dollar’s year-to-date losses to 1.4%, neatly dovetailing with a 1.5% increase ytd for EURUSD which closed at 1.0863 overnight, up 0.1%. GBPUSD dropped overnight, falling by 0.3% to 1.232 taking its ytd gains to about 2% while USDJPY fell by 0.2%, helping to move the yen 0.8% stronger since the start of 2023.
  • USDCAD was the standout among commodity currencies overnight with a drop of 0.6% in favour of the loonie at 1.3306. Gains for the Canadian currency so far this year stand at 1.8%. AUDUSD was flat overnight, closing at 0.7055 with Australia’s still elevated currency raising the prospect of more tightening from the RBA and allowing gains of 3.6% for AUD so far this year. NZDUSD dropped by 0.5% overnight to 0.644, taking its ytd move to a gain of 1.4%.


  • There were more losses for East Asian equity indices yesterday as the Hang Seng closed down 1.0% and the Shanghai Composite and the Nikkei 0.4%. Indian markets saw modest gains later in the day, although only to the tune of 0.1% for both the Sensex and the Nifty.
  • European markets recouped earlier losses towards the end of the day with the CAC and DAX closing flat, although the FTSE 100 still closed 0.2% lower.
  • US markets picked up again yesterday with the Dow Jones, the S&P 500, and the NASDAQ adding 1.1%, 1.5%, and 1.7% respectively.
  • Locally, the DFM closed flat while the ADX added 0.1%. The Tadawul ended the day 0.2% lower.


  • Oil prices settled mixed overnight with a 0.5% drop in Brent futures at USD 84.49/b and a gain of 1.3% in WTI to USD 78.87/b. Both benchmarks have fallen year-to-date with Brent and WTI down by 1.7%. The OPEC+ JMMC meets today and we expect they will advise to keep policy unchanged.
  • Data from the API showed a build in US crude inventories of 6.3m bbl last week along with moderate increases in gasoline and diesel stockpiles.


Written By

Edward Bell Head of Market Economics

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