Graeme Wearden 

German economy stagnates as eurozone growth hits seven-year low – business live

Rolling coverage of the latest economic and financial news, including the latest eurozone growth figures
  
  

The dome of the Reichstag building where the German federal parliament Bundestag meets in Berlin.
The dome of the Reichstag building where the German federal parliament Bundestag meets in Berlin. Photograph: Michael Sohn/AP

Finally, the UK’s FTSE 100 has closed down 0.6%, or 43 points, at 7,409.

Europe did better, despite today’s unimpressive growth report. The Stoxx 690 has finished the day flat (rather like Germany’s GDP...).

Have a lovely weekend. GW

The eurozone will probably struggle to grow in the current quarter, reckons Greg Daco of Oxford Economics.

He predicts that the mere 0.1% growth reported in October-December will be repeated in January-March, with coronavirus restrictions hurting the economy.

If you’re just tuning in, here’s the AFP newswire’s take on today’s German growth figures:

Hopes pale for German growth rebound after late 2019 flatline

Europe’s largest economy Germany marked time in the fourth quarter of 2019 as its export-oriented industry’s woes continued to weigh on growth, official data showed Friday.

Gross domestic product (GDP) was flat quarter-on-quarter in October-December, federal statistics authority Destatis said, disappointing the agency’s own expectations and those of analysts surveyed by Factset.

The statisticians also revised their third quarter growth figures, saying that GDP had added 0.2% rather than 0.1%.

Over the whole year, the annual growth rate of 0.6% was Germany’s worst since 2013.

The economy “remains in a weak phase,” the economy ministry in Berlin said, highlighting “very weak” industrial production and incoming orders for manufacturing firms towards the end of the year.

After a surge in 2017-18, Germany’s export-oriented economy has been sapped since late 2018 by trade conflicts and other sources of uncertainty, including Brexit and slower growth in emerging economies.

For some analysts, that meant simply avoiding a second quarter of shrinkage in 2019 after the contraction in April-June was worth celebrating.

“Overall economic stagnation in the fourth quarter is already a small success” given that industrial output shrank strongly, said Dr. Fritzi Koehler-Geib, chief economist at KfW banking group.

Industry continues to suffer, with production shrinking sharply in December, Destatis data showed.

Meanwhile, “private and state consumer spending lost significant momentum after a strong third quarter,” the statisticians added.

Supported by unemployment close to historic lows and gradually rising public spending, consumption had been an important buttress to economic activity in Germany compensating for ailing industry.

Looking ahead into 2020, the rebound many observers were hoping for in the first half of the year will likely be pushed back by the effects of the novel coronavirus COVID-19.

“The German economy’s performance in the first quarter will largely depend on how the coronavirus affects the Chinese economy, and German exports to China,” Commerzbank economist Joerg Kraemer said.

Goods sold to China account for around three percent of German GDP, Oddo bank analysts noted.

But there are challenges to Europe’s powerhouse beyond the cyclical slowdown.

“The manufacturing sector remains caught between cyclical weakness, on the back of the trade conflict and weaker global growth, and structural weakness, on the back of disruption in the automotive sector and too little investment,” said ING bank economist Carsten Brzeski.

In the coming months, the country has little to look forward to but “stagnation, with a risk of a technical recession,” he added.

Fancy some afternoon reading? Here’s a fascinating thread from Sky News’s Ed Conway about UK statistics, and how a mysterious gold transaction flattered Britain’s trade data:

The US stock market has opened gently, with the Dow Jones industrial average up 33 points or 0.1% at 29,456.

That’s despite a 0.1% drop in US factory output last month, as Boeing’s 737 Max crisis hits.

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:

“With the coronavirus death total now reaching 1,000 and looking likely to go much higher, Asian shares have nevertheless followed yesterday’s Wall Street rally as factories begin to re-open across China.

Asia-Pacific shares outside Japan rose 0.9%, with Shanghai blue chips gathering momentum by reaching 0.8%. The Japanese Nikkei market was closed due to a public holiday. In Europe, stocks are also higher the FTSE up 0.7%.

Although markets are higher , investors will likely remain concerned about the impact of the coronavirus on the global economy. After 18-months of the trade dispute wreaking havoc on the markets and China, the coronavirus outbreak has been an additional source of concern, though markets are remarkably resilient for now.”

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.

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:

Regulator: Tesco unlawfully blocked rivals

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.

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:

It’s unacceptable that Tesco had these unlawful restrictions in place for up to a decade. By making it harder for other supermarkets to open stores next to its branches, shoppers could have lost out.

In the future, we want the ability to fine businesses if we find that they are in breach of our orders. That’s why we’ve called on the Government for more powers.

The CMA is also asking other supermarkets to check whether they have used similar anti-competitive restrictions.

PwC: Peripheral Eurozone economies come back fighting

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:

“Today’s country breakdown of Eurozone’s GDP growth showed us that the bloc grew by 1.2% in 2019. This rate of expansion is comparable to that of the UK. The US economy, however, grew by 2.3% in 2019, which is around double the rate of the Eurozone and the UK”

The Eurozone performance can be mainly explained by the poor performance of Germany and Italy, which are its biggest and third largest economies respectively. Size matters when it comes to GDP growth rates - a one percentage point increase in the growth rate of Germany and Italy increases Eurozone GDP by 0.5 percentage points.”

“However, the bright spot in the Eurozone continues to lie in the peripheral economies. With the exception of Greece, all of the bailout economies have surpassed pre-crisis output levels and continue to grow at strong rates. In fact, we estimate that the three bailout economies (Spain, Portugal and Cyprus) which reported Q4 2019 output estimates today, grew by 0.6% quarter-on-quarter compared to virtually no growth in the German, French, Italian and Dutch economies in GDP weighted terms (see Figure below).”

Allianz: Is Germany a “stranded” economy?

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.

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.
  • 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.

More here.

Andrew Kenningham of Capital Economics has told clients:

“We think the economy will continue to flirt with recession in the first half of this year.”

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.

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.

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.

Eurozone growth hits seven-year low

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

Eurozone only grew by 0.1% in the last quarter

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%.

Updated

RBS outlines climate emergency plan

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:

This will be a significant challenge as we, like others, do not yet fully understand what this will require and how it will be achieved, not least as there is currently no standard industry methodology or approach. Solving this will require UK and international industry, regulators and experts to come together and find solutions. We are determined to not just play our part, but to lead on the collaboration and co-operation that is so critical to influencing the transition to a low carbon economy.

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.

Euro hits lowest since May 2017

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.

ING: Germany at risk of recession

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:

Looking ahead, the latest soft indicators and industrial data for December do not bode well for the short-term outlook. Also, the impact from the coronavirus on the Chinese economy is likely to delay any rebound in the manufacturing sector as it at least temporarily disrupts supply chains.

However, despite these rather discouraging factors, there are several – partly technical – drivers which should soften any pessimism. The poor performance of the construction sector in the fourth quarter was mainly driven by the Christmas break. With mild winter weather, a rebound in the first quarter looks likely. Also, changes in the inventory cycle could support growth in the short run.

Brzeski reckons that hopes of a strong rebound this year have been wiped out:

Some weeks ago, we had started to investigate which form the recovery could take from the alphabet soup of options. Will it be a ‘V’ for a strong rebound, a ‘U’ for a longer bottom followed by a strong rebound, a ‘J’ for a longer period of stagnation followed by a weak rebound, an ‘L’ for a long period of stagnation or even a ‘W’ for a double dip recession? Today’s data shows that the alphabet soup has been taken off the menu for the time being.

Stagnation, with a risk of a technical recession, currently looks like the only dish served.

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.

Introduction: Germany economy stagnating

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.

After a very strong third quarter, the final consumption expenditure of both households and government slowed down markedly. Trends diverged for fixed capital formation.

While gross fixed capital formation in machinery and equipment was down considerably compared to the third quarter, fixed capital formation in construction and other fixed assets continued to increase.

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
 

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