Société Generale: Europe Macro Radar - FJElite

Charts of the week. As PMIs did the week before, national surveys collected by the European Commission in March showed little impact of recent events on activity expectations. Prices expectations increased noticeable in industry but were roughly unchanged in services. Though it is worthwhile to note that prices expectations in services have stayed for the past years decently above their pre-pandemic average level. Overall, this leave activity expectations close to normal and prices expectations above normal in both sectors. Otherwise, don’t be fooled by the fact that the weight of motor fuels in the euro area HICP is 4.0% while it is 2.9% in the US as that higher European number is boosted by much higher taxes which are mostly fixed (excise duties...). Setting aside those fixed taxes leave euro area HICP roughly as sensitive as US CPI to oil prices. And if we acknowledge that VAT rates tend to be lowered when oil prices rise too much, the sensitivity of euro area HICP is more likely to be lower.

Last week in monetary policy. Comments by ECB officials were fewer in number this week. France’s Villeroy de Galhau (an usual dove) said the next move was likely to be up, but said it was premature to give any kind of calendar yet.

Last week in data. In the end, the rise of headline euro area inflation in March was a tad smaller than we had feared at 2.5% yoy (core inflation was at 2.3% in line with our expectations). But this is only a temporary respite. Looking ahead, the magnitude and persistence of the ongoing shock will determine how high inflation rises this year. The continued pass-through of higher wholesale gas and fuel prices should push euro area headline inflation to around 4% in April and May. Thereafter, our commodity analysts expect Brent to average $105/bbl in 2Q26 before easing to $80/bbl by 4Q26, although risks are likely skewed to the upside. Accounting for second-round effects, we expect this to keep headline inflation close to 4% throughout 2026.

Otherwise, March surveys of the European Commission also showed a larger hit to selling price expectations than to production expectations in industry with little impact so far in services. Most of responses to those surveys were collected early in the month and only give a very early picture of impact of higher oil prices on the economy.

Finally, activity & labour market data in February were slightly disappointing but well-inside the usual range. Euro area unemployment gained one-tenth to the still very low level (for Europe) of 6.2%. Germany is still shedding industrial jobs at a decent pace (-2.7%yoy) though the unemployment rate is stable at 4.0% and retail sales there declined 0.6% mom. As for France, real consumer spendingon goods surprised to the downside with a 1.4% mom fall. Mild temperatures and a change in the timing of sales have played a clear role with energy spending down 2.4% and clothing spending down 4.0%. Excluding energy, spending is only down 0.2% in January/February vs 4Q so pointing more to continued stagnation rather than a change of trend for the worst. And early March indicators confirmed that with a rebound of car registrations of 4.7% mom after a 3.7% decline. Mild temperatures also led to lower French industrial production in February (-0.7% mom). Manufacturing production was stable but, with the January level revised down 0.4pp, the growth carry-over so far in IQ is slightly negative. Those data are in line with our forecast of low real GDP growth in France in IQ (0.1% qoq).