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German economy stagnates as eurozone growth hits seven-year low - business live German economy stagnates as eurozone growth hits seven-year low - business live
(32 minutes later)
Rolling coverage of the latest economic and financial news, including the latest eurozone growth figuresRolling coverage of the latest economic and financial news, including the latest eurozone growth figures
With stock markets at record highs, Universal Music wants to join the party with an IPO:
Here’s our story about Tesco illegally blocking its rivals from opening stores:
Wall Street is expected to post fresh gains today, despite the uncertainty created by Covid-19.
Mihir Kapadia, the CEO of Sun Global Investments, says:
For days, investors have been fluctuating between panicking about the coronavirus, and persuading themselves that the crisis is abating.For days, investors have been fluctuating between panicking about the coronavirus, and persuading themselves that the crisis is abating.
Today they’re in a calm mood, pushing stocks in Europe up to new record highs.Today they’re in a calm mood, pushing stocks in Europe up to new record highs.
The Stoxx 600 index has gained 0.15% to a fresh peak, after China reported that some deaths have been ‘double-counted’. This has reassured traders, who hit the sell button yesterday after a big spike in cases.The Stoxx 600 index has gained 0.15% to a fresh peak, after China reported that some deaths have been ‘double-counted’. This has reassured traders, who hit the sell button yesterday after a big spike in cases.
But new cases keep cropping up around the world, including a Channel 4 employee in London:But new cases keep cropping up around the world, including a Channel 4 employee in London:
Back in the UK, supermarket chain Tesco has been blasted by regulators for unlawfully blocking its rivals from opening stores.Back in the UK, supermarket chain Tesco has been blasted by regulators for unlawfully blocking its rivals from opening stores.
The Competition and Markets Authority has announced that Tesco has pledged to stop using covenants and exclusivity arrangements to prevent landlords letting sites to other supermarkets.The Competition and Markets Authority has announced that Tesco has pledged to stop using covenants and exclusivity arrangements to prevent landlords letting sites to other supermarkets.
A review has found 23 separate agreement of this type, which has been illegal since 2010.A review has found 23 separate agreement of this type, which has been illegal since 2010.
Andrea Gomes da Silva, Executive Director, Markets and Mergers at the CMA, says:Andrea Gomes da Silva, Executive Director, Markets and Mergers at the CMA, says:
The CMA is also asking other supermarkets to check whether they have used similar anti-competitive restrictions.The CMA is also asking other supermarkets to check whether they have used similar anti-competitive restrictions.
Back in the debt crisis, some of Europe’s smaller countries were the black sheep of the euro-flock. Today, these peripheral nations are driving growth, as France and Italy shrink and Germany stagnates.Back in the debt crisis, some of Europe’s smaller countries were the black sheep of the euro-flock. Today, these peripheral nations are driving growth, as France and Italy shrink and Germany stagnates.
Barret Kupelian, senior economist at PwC, says the periphery are the euro area’s bright spot:Barret Kupelian, senior economist at PwC, says the periphery are the euro area’s bright spot:
Germany’s economy is unlikely to improve much this year, due to trade tensions, the shift away from petrol and diesel cars, and Brexit.Germany’s economy is unlikely to improve much this year, due to trade tensions, the shift away from petrol and diesel cars, and Brexit.
So argues Ludovic Subran and Katharina Utermöhl, top economists at German insurance giant Allianz. They warn in a new report that Europe’s largest member risks a “stranded future”, unless it can strengthen its economy and become more competitive.So argues Ludovic Subran and Katharina Utermöhl, top economists at German insurance giant Allianz. They warn in a new report that Europe’s largest member risks a “stranded future”, unless it can strengthen its economy and become more competitive.
Here’s the key points, kicking off on today’s growth figures.Here’s the key points, kicking off on today’s growth figures.
Recession avoided in 2019, but no rebound on the cards for 2020. At +0.6%, about half the rate for the Eurozone as a whole, German GDP grew at the slowest pace since the region’s sovereign debt crisis. We do not expect 2020 to bring much relief with GDP growth likely to slow marginally to a seasonally-adjusted +0.5%. Moreover the risk that Germany’s “golden” decade of uninterrupted economic growth – the longest period of expansion since reunification – will come to an end in 2020 remains on the table for now, given the cautious outlook for global trade and the automotive industry as well as lingering elevated political uncertainty over trade and Brexit.Recession avoided in 2019, but no rebound on the cards for 2020. At +0.6%, about half the rate for the Eurozone as a whole, German GDP grew at the slowest pace since the region’s sovereign debt crisis. We do not expect 2020 to bring much relief with GDP growth likely to slow marginally to a seasonally-adjusted +0.5%. Moreover the risk that Germany’s “golden” decade of uninterrupted economic growth – the longest period of expansion since reunification – will come to an end in 2020 remains on the table for now, given the cautious outlook for global trade and the automotive industry as well as lingering elevated political uncertainty over trade and Brexit.
The subdued outlook for the German economy provides a glimpse of a “stranded” future. Europe’s economic powerhouse is struggling to keep up with structural change, putting it at risk of becoming a “stranded economy” with its long-standing competitive advantage in industry and in particular the car sector becoming obsolete. While the German economy remains highly innovative, it is increasingly struggling to leverage its potential, given the lack of even a basic digital infrastructure, a growing digital skills gap and inadequate start-up funding.The subdued outlook for the German economy provides a glimpse of a “stranded” future. Europe’s economic powerhouse is struggling to keep up with structural change, putting it at risk of becoming a “stranded economy” with its long-standing competitive advantage in industry and in particular the car sector becoming obsolete. While the German economy remains highly innovative, it is increasingly struggling to leverage its potential, given the lack of even a basic digital infrastructure, a growing digital skills gap and inadequate start-up funding.
But a “lost” decade for Germany is not a done deal, yet. What is needed is a significant long-term investment plan focused on upgrading infrastructure, updating the education system, boosting research & development capabilities and creating a venture fund to co-invest in promising start-ups. But solely throwing money at the problem is not the solution. Instead the German economy’s digital catch-up initiative needs to be accompanied by a “simplification shock“ i.e. a notable reduction in red tape to allow for a better delivery of large-scale infrastructure projects, as well as to make life easier for corporates, particularly SMEs.But a “lost” decade for Germany is not a done deal, yet. What is needed is a significant long-term investment plan focused on upgrading infrastructure, updating the education system, boosting research & development capabilities and creating a venture fund to co-invest in promising start-ups. But solely throwing money at the problem is not the solution. Instead the German economy’s digital catch-up initiative needs to be accompanied by a “simplification shock“ i.e. a notable reduction in red tape to allow for a better delivery of large-scale infrastructure projects, as well as to make life easier for corporates, particularly SMEs.
More here.More here.
Andrew Kenningham of Capital Economics has told clients:Andrew Kenningham of Capital Economics has told clients:
It’s hard to put too much gloss on a stagnating economy, but the German government has tried to strike an optimistic-ish tone this morning.It’s hard to put too much gloss on a stagnating economy, but the German government has tried to strike an optimistic-ish tone this morning.
Berlin’s economy ministry says Germany’s economy is going through a weak phase, but it’s encouraged that business sentiment has improved.Berlin’s economy ministry says Germany’s economy is going through a weak phase, but it’s encouraged that business sentiment has improved.
But... the ministry also warns that the coronavirus outbreak means that the risks from overseas have increased, but it’s hard to say what the impact will be.But... the ministry also warns that the coronavirus outbreak means that the risks from overseas have increased, but it’s hard to say what the impact will be.
More encouragingly, employment growth across the eurozone has risen.More encouragingly, employment growth across the eurozone has risen.
The number of employed people rose by 0.3% in the euro area in the final quarter of 2019, and by 0.2% in the European Union. That’s up from 0.1% in Q3.The number of employed people rose by 0.3% in the euro area in the final quarter of 2019, and by 0.2% in the European Union. That’s up from 0.1% in Q3.
This jobs creation has pulled the unemployment rate down to its lowest level since the financial crisis, which is clearly welcome -- but it’s disappointing that it’s not leading to faster growth.This jobs creation has pulled the unemployment rate down to its lowest level since the financial crisis, which is clearly welcome -- but it’s disappointing that it’s not leading to faster growth.
At just 0.1%, the eurozone and the EU has both posted their weakest growth since early 2013 (when the debt crisis drove Europe into recession).
Although countries in the periphery grew quite strongly in the last quarter of 2019, weakness at Europe’s largest economies was to blame.
Here’s what we know (not all countries have reported GDP yet):
Romania: +1.5% quarter-on-quarter in October-December
Lithuania: +1.3%
Hungary: +1.0%
Cyprus: +0.8%
Bulgaria: +0.7%
Portugal: +0.6%
Slovakia: +0.6%
Spain: +0.5%
Belgium: + 0.4%
Netherlands: +0.4%
Austria: +0.3%
Denmark: +0.3%
Czechia: +0.2%
Latvia: +0.2%
Poland: +0.2%
Germany: no growth
France: -0.1%
Italy: -0.3%
Finland: -0.4%
And here’s how some non-EU members performed
China: +1.5% growth quarter-on-quarter
US: + 0.5%
UK: no growth
Just in: The eurozone nearly stalled in the final quarter of 2019, dragged down by weakness in its three largest economies.
Statistics body Eurostat reports that the euro area and the wider European Union only grew by 0.1% in October-December. That’s down from 0.3% growth across Europe in July-September
Germany stagnated (as we learned at 7am), while France and Italy contracted during the quarter.
On an annual basis, the eurozone only grew by 1.2% in 2019 while the EU expanded by 1.4%.
This matches Eurostat’s ‘flash’ GDP estimates from a couple of weeks ago, and confirms that Europe ended 2019 on a weak note.
Paul Sommerville of Sommerville Advisory Markets points out that Germany’s economy has been basically flat for nine months:
European stock markets are subdued today, following Germany’s underwhelming growth figures.
The Stoxx 600 index is flat, having dropped yesterday as traders fretted about a sharp leap in coronavirus cases.
In London, the FTSE 100 is being pulled down by RBS (-6%); its weak outlook has also pushed Lloyds and Barclays down almost 1%.
Over in the City, shares in Royal Bank of Scotland have slumped 6% as new chief executive Alison Rose outlines her strategy alongside its latest financial results
RBS is being rebranded as NatWest, with Rose perhaps hoping to put the legacy of the bank’s bailout firmly into history.
She is also slashing the size of its investment bank and cutting its long-term profitability targets. But arguably the most important news is that RBS has laid out its climate emergency strategy.
It plans to”at least halve” the climate impact of our financing activity by 2030, and will phase out all support for the coal industry by the end of the decade. It will also stop lending to energy firms from next year if they don’t have a plan to help achieve the Paris Agreement goals.
Rose concedes this will be tough:
RBS also posted a 93% jump in profits for 2019. Investors, though, are disappointed that RBS didn’t announce a larger special dividend today. They may also be concerned that the bank says it faces a “range of significant risks and uncertainties” from political, economic and regulatory angles.
The euro has dropped to its lowest level in over two and a half years, after this morning’s German GDP figures.
The single currency has dipped to €1.0828, its weakest levels since May 2017, extending its recent losses.
The risk of a full-blown recession is hanging over Germany, says economist Carsten Brzeski of ING.
He fears that the Covid-19 outbreak will hurt Germany, although a pick-up in construction could cushion the blow.
Having analysed today’s GDP report, Brzeski writes:
Brzeski reckons that hopes of a strong rebound this year have been wiped out:
Stagnation is bad, but there’s some relief that Germany didn’t do even worse.
Oliver Rakau of Oxford Economics feared German GDP could actually have contracted in the last quarter, given recent weak data:
Bloomberg’s Fergal O’Brien agrees:
But currency analyst Marc-André Fongern is concerned about Germany’s prospects this year, given the coronavirus outbreak will hurt its manufacturing base.
2019 was not a great year for Germany.
Today’s GDP report shows that the economy grew by 0.5% in January-March, only to shrink by 0.2% in April-June. Growth picked up by 0.2% in July-September, before fizzling out in the last quarter.
Good morning, and welcome to our rolling coverage of the world economy, the financial market, the eurozone and business.
Newsflash: Germany’s economy is flatlining, as a slowdown in spending and exports wipes out growth.
Figures just released show that German GDP was unchanged in the fourth quarter of 2019. Economists had expected a rise of 0.1%, so this is disappointing (and matches the UK’s own performance in Q4).
On an annual basis, the German economy only grew by 0.6% during 2019, Destatis adds. That’s a very weak result, as Europe’s largest economy struggles to handle trade tensions, changes in the auto industry, and a slowing European economy.
It’s not all gloom -- growth in the third quarter has been revised up to 0.2%. But the general picture is weak:
Destatis, Germany’s statistics body, reports that household and government spending both slowed in the last quarter, while investment from companies was mixed.
Donald Trump’s trade wars also hurt Germany. Destatis reports that German exports were “slightly down” in the last quarter, while imports of goods and services increased.
Later today we’ll get an updated reading on eurozone GDP for the last quarter. Preliminary figures release last month showed that the region only grew by 0.1%, with France and Italy shrinking.
More to follow!
The agenda
7am GMT: German GDP for October-December 2019, first estimate
10am GMT: Eurozone GDP for October-December 2019, second estimate