Graeme Wearden 

IMF warns Hunt against tax cuts; eurozone avoids recession – as it happened

Rolling coverage of the latest economic and financial news, as the eurozone stagnates in the final quarter of 2023
  
  

The Quadriga of the Brandenburg Gate during sunset in Berlin.
The Quadriga of the Brandenburg Gate during sunset in Berlin. Photograph: Fabrizio Bensch/Reuters

Closing post

Time for a recap

The International Monetary Fund (IMF) has “advised the UK against further tax cuts”.

In its latest assessment of the world economy, the IMF said the government should prioritise preserving public services and investment, while keeping debt levels under control.

An IMF spokesperson said:

“Preserving high-quality public services and undertaking critical public investments to boost growth and achieve the net zero targets, will imply higher spending needs over the medium term than are currently reflected in the government’s budget plans.

“Accommodating these needs, while assuredly stabilising the debt/GDP ratio, will already require generating additional high-quality fiscal savings, including on the tax side.”

The chancellor, Jeremy Hunt, hit back, saying:

“The IMF expect growth to strengthen over the next few years, supported by our introduction of the biggest capital investment tax reliefs anywhere in the world, alongside National Insurance cuts to improve work incentives.

It is too early to know whether further reductions in tax will be affordable in the Budget, but we continue to believe that smart tax reductions can make a big difference in boosting growth.”

The IMF also lifted its forecast for global growth, and said that a “soft landing” was in sight for the world economy.

But there was gloom in the UK, with corporate insolvencies in England and Wales hitting their highest level since 1993 last year.

In a busy day for economic data, the eurozone has narrowly avoided recession.

GDP across the euro area was flat in October-December, despite a 0.3% contraction in Germany. France stagnated, while Italy, Spain and Portugal all grew.

Here’s the rest of today’s news:

There’s been drama in the energy market today, with Saudi Arabia abandoning plans to grow its crude production capacity by 1m barrels a day.

The world’s biggest exporter signalled a big change in policy by ordering the state oil company, Saudi Aramco, to drop plans to expand its maximum production capacity to 13m barrels a day by 2027.

US job openings unexpectedly rose in December to the highest level in three months, suggesting America’s labor market remains strong.

The latest JOLTS report shows that vacancies increased to 9 million at the end of December, from 8.9 million reading in the previous month.

The report also shows fewer Americans quit their jobs in December.

Over in the US, consumer confidence has risen to a two-year high as the slowdown in inflation cheers households.

The Conference Board’s Consumer Confidence Index rose in January to 114.8, up from 108.0 in December. The reading was the highest since December 2021, and marked the third straight monthly increase.

Dana Peterson, chief economist at The Conference Board, says:

“January’s increase in consumer confidence likely reflected slower inflation, anticipation of lower interest rates ahead, and generally favorable employment conditions as companies continue to hoard labor.”

The IMF has also given a thumbs-down to the free market policies of Argentina’s new president, Javier Milei.

The Fund has cut its growth estimate for Argentina, forecasting South America’s second-largest economy will shrink by 2.8% this year, following a 1.1% contraction in 2023.

Back in October, the Fund forecast 2.8% growth in 2024.

Milei is making wide-ranging reforms to Argentina, deregulating the economy and removing regulations covering housing rental market, export customs arrangements, land ownership, and food retailers. He is also pushing through a wave of privatisations, ferocious spending cuts, a major expansion of presidential powers, and a scaling back of workers’ rights and the right to protest, and proposing tax amnesties.

But unions are resisting, holding nationwide strike action.

The IMF’s intervention comes less than two weeks after Jeremy Hunt hinted that he could deliver big tax cuts in his March budget.

Speaking at the World Economic Forum in Davos in mid-January, Hunt told UK journalists that he wanted to take the UK in the direction of the faster-growing economies in North America and Asia which tend to have lower taxes.

A week later, the latest public finances showed a drop in borrowing in December, giving Hunt up to £20bn of fiscal headroom to lower taxes.

The IMF, though, wants him to use that wriggle-room to keep the national debt in check, while also preserving public services and making critical investments.

Some early reaction to the IMF’s position:

The last time the IMF intervened in UK government policy was September 2022, when it openly criticized then-Prime Minister Liz Truss’s disastrous mini-budget, points out Bloomberg.

That mini-budget, which contained unfunded tax cuts and lacked independent assessment from the Office for Budget Responsibility, caused turmoil on financial markets and knocked the pound to a record low.

Relations have improved under Rishi Sunak, who reversed most of the unfunded tax cuts proposed by Truss, but the fund’s latest stance places it at odds with the government’s clear ambition, Bloomberg adds.

Why the IMF advises against UK tax cuts

The IMF have confirmed that are advising the UK not to lower taxes further.

They’re holding a press conference now on their latest World Economic Outlook, released 40 minute ago, where chief economist Pierre-Olivier Gourinchas has been quizzed about their advice to the UK.

Gourinchas explains that the IMF expects the UK to grow by 0.6% this year, rising to 1.6% in 2025 – which would be a return to “some level of normalcy”.

And the IMF’s message to the UK, and a number of other countries, is that they need to put in place medium-term fiscal plans that will accommodate a “very significant increase in spending pressures.”

In the case of the UK, Gourinchas says, that could include spending on health care and modernising the NHS, spending on social care, and on education.

There is also the need for critical public investment to address climate issues, and also to boost growth.

This means it is “very important” to have medium term fiscal plans in place that accommodate this pressures, and ensure that debt dynamics remain remain “stable and contained”, Gourinchas explains.

That requires a combination of tax and spending measures, so the government can allocate resources where they are needed while preventing your debt levels from increasing.

Gourinchas adds:

“In that context we would advise against further discretionary tax cuts as envisioned and discussed now.”

Updated

Hunt: Smart tax cuts can boost growth

Chancellor Jeremy Hunt has responded to the IMF’s warning, saying it’s “too early” to know if he’ll be able to cut taxes in the budget:

“The IMF expect growth to strengthen over the next few years, supported by our introduction of the biggest capital investment tax reliefs anywhere in the world, alongside National Insurance cuts to improve work incentives.

It is too early to know whether further reductions in tax will be affordable in the Budget, but we continue to believe that smart tax reductions can make a big difference in boosting growth.”

Updated

The timing of the IMF’s warning against UK tax cuts is “incredibly inconvenient” for chancellor Jeremy Hunt, says ITV’s Joel Hills.

He writes:

The IMF suggests there’s a strong case for putting taxes up, given that, it believes the pressures on the public finances in Britain will only increase in the years ahead.

An IMF spokesperson said:

“Preserving high-quality public services and undertaking critical public investments to boost growth and achieve the net zero targets, will imply higher spending needs over the medium term than are currently reflected in the government’s budget plans.

Accommodating these needs, while assuredly stabilising the debt/GDP ratio, will already require generating additional high-quality fiscal savings, including on the tax side.”

Full story: IMF says global economy heading for ‘soft landing’

The global economy is gliding towards a “soft landing” after coping with the impact of tough central bank interest-rate action to reduce inflation, the International Monetary Fund has said.

Revising up its growth estimates for 2024, the IMF said a number of major economies – including the US, China, Russia and India – had posted stronger than expected performances in 2023 and it was surprised by the resilience shown.

Pierre-Olivier Gourinchas, the IMF’s economic counsellor said:

“The clouds are beginning to part. The global economy begins the final descent toward a soft landing, with inflation declining steadily and growth holding up.”

Announcing details of the interim World Economic Outlook (WEO), Gourinchas said the IMF expected global growth to be 3.1% in both 2023 and 2024, upward revisions of 0.1 and 0.2 percentage points respectively. But he stressed the pace of expansion – which compares with an average of 3.8% during the 2010s – remained slow and there was a risk of turbulence ahead.

More here.

IMF warns Hunt against tax cuts

The IMF has warned UK chancellor Jeremy Hunt against cutting taxes, an intervention that is unlikely to be welcomed by the government ahead of the budget in early March.

Instead of tax giveaways, the IMF argues the UK needs to curb public borrowing, rebuild its fiscal buffers, and prioritise spending in areas such as health, education and tackling climate change.

Pierre-Olivier Gourinchas, IMF chief economist, told the Financial Times the UK’s focus should be on “the path towards a fiscal consolidation” despite expectations that Hunt will cut taxes at his spring Budget.

Gourinchas says:

“We would rather wish they would not do this type of tax cuts, and that they would instead focus on both addressing the spending needs and on the path towards a fiscal consolidation.”

More here.

The IMF has cut its forecast for eurozone growth, in its updated World Economic Outlook.

It now expects euro area GDP to grow by 0.9% this year, down from the 1.2% forecast in October.

Expected growth in 2025 has been trimmed to 1.7% from 1.8%.

It has also revised down Germany growth forecast to 0.5% in 2024, down from 0.9% expected in October.

IMF lifts growth forecast, says global 'soft landing' in sight

Newsflash: the International Monetary Gund has raised its forecast for global growth this year to 3.1%, up from 2.9% forecast in October.

And in news that will cheer investors, the IMF believes that the much-hoped-for “soft landing” is in sight, in its latest update to its World Economic Outlook.

The IMF’s chief economist, Pierre-Olivier Gourinchas, says:

“We find that the global economy continues to display remarkable resilience and we are now in the final descent toward a ‘soft landing’ with inflation declining steadily and growth holding up.

But the base of expansion remains on the slower side and there might be turbulence ahead.”

Gourinchas warns, though, that overall growth and global trade are still lower than the historical average.

Eurozone GDP will continue to stagnate in 2024 Q1, with growth below trend during 024, predicts Aline Schuiling of ABN AMRO Financial Markets Research.

Schuiling explains:

Growth will continue to be limited by the high level of interest rates. Moreover, fiscal policy will be restrictive as well, with energy-support measures for households and companies being unwound. On the other hand, the combination of a drop in inflation and still elevated wage growth will support household income.

Besides, the upcoming start of interest rate cuts by the main central banks has resulted in some easing of financial conditions and has also lifted consumer and producer confidence, which should support domestic spending. No sharp rebound in growth is expected, however, and we do not expect growth to gain momentum and rise above the trend growth rate until around the end of the year

Away from the eurozone, Mexico’s economy only managed modest growth at the end of 2023.

Government statistics show that Mexico’s economy grew 0.1% in the fourth quarter, weaker than the 0.4% growth expected by economists.

On an annual basis, Mexico grew by 2.4%, below the 3.1% expected.

Today’s GDP report shows that Ireland’s GDP contracted in each of the four quarters of 2023, shrinking by 1.9% in Q1, 0.4% in Q2, 1,9% again in Q3 and then 0.7% in Q4.

Ireland’s Central Statistics Office says this is due to a decrease in the “multinational dominated sectors of Industry” – ie large international corporations who base themselves in Ireland, partly for tax reasons.

Ireland’s GDP readings can be volatile due to the large multinationals based in the Republic, and isn’t really a good tracker of its econony.

Updated

The eurozone’s refusal to fall into recession (yet, anyway) takes some pressure off the Euroepan Central Bank as it assesses when would be safe to start cutting interest rates.

Alex Livingstone, head of FX and trading at Titan Asset Management, says:

“The Q4 2023 growth numbers for the Euro Area revealed stagnant 0% growth, surpassing the -0.1% consensus for the quarter.

Because growth isn’t crumbling under the pressure of higher rates like some thought it might, this latest data print will buy [Christine] Lagarde some more time for inflation to return to the ECB’s 2% target before cutting rates.

Key event

It’s not all doom and gloom for the eurozone, insists Michael Field, European market strategist at Morningstar:

Field points out that growth among Europe’s peripheral countries helped the eurozone avoid a recession, while the Big Two members struggled.

Here’s his take on this morning’s GDP data:

“Euro area GDP was flat in the last quarter of 2023, coming in better than expectations of a 0.1% fall. This means that for the entire year, growth in the euro area economy was essentially steady. There are two ways to look at this. On the negative side, 2023 was effectively a dead year with zero growth, but on the positive side, despite record high interest rates and high inflation levels not seen since the 1970’s, the euro area economy successfully managed to avoid a recession.

“A rebound in the peripheral economies of Belgium, Spain, and Portugal, registered the highest level of growth at 0.8% in the fourth quarter. While not blistering, this growth helped mitigate depressed growth in Europe’s two powerhouse economies of Germany and France.

“Lack of growth in the euro area contrasts uncomfortably with the over 3% growth in the US over the same period. The negative implication of this is that it makes regional investment decisions for international firms all that much easier to make, with Europe looking much less attractive at this point in time. This situation is reflected in economic sentiment readings released today, which declined month on month.

“However, it’s not all doom and gloom in Europe. Inflation is within touching distance of central banks’ targeted levels, meaning interest rates should decline over the course of this and next year. This brings much welcome relief to businesses and indeed consumers’ pockets.”

Today’s data shows that the eurozone fell further behind the United States at the end of last year.

Data last week showed that US GDP rose by an annualised rate of 3.3% in Q4, which means a quarter-on-quarter increase of around 0.8%. Rather more impressive than the eurozone’s 0% growth.

That means the US grew as fast as the quickest-growing eurozone country in Q4, Portugal.

We find out next month how the UK performed in Q4.

The broad picture is that the eurozone has stagnated over the last year.

GDP rose by just 0.1% in both Q1 and Q2 2023, before shrinking by 0.1% in the third quarter and stalling (as we just learned) in Q4.

The eurozone economy “escaped recession by the skin of its teeth” by the end of 2023, says Diego Iscaro, head of Europe economics at S&P Global Market Intelligence

Iscaro also fears thar that eurozone will struggle to grow in the first half of this year, after stagnating in the final quarter of 2023.

He explains:

Declining activity in Germany was offset by stronger than expected growth in Spain, while the French economy stagnated.

The outlook for 2024 continues to be challenging amid faltering demand and increasing geopolitical tensions. The expected fall in inflation should help to support households’ finances, although this positive impact will be at least partly offset by less supportive fiscal conditions. Similarly, we expect labour market conditions to gradually become less positive, although we currently project a modest increase in the unemployment rate this year.

All in all, we think that eurozone activity will remain virtually stagnant during the first half of 2024.

Among the eurozone member states for which data are available so far, Portugal (+0.8%) recorded the highest growth in Q4 compared to Q3, followed by Spain (+0.6%), Belgium and Latvia (both +0.4%).

Declines were recorded in Ireland (-0.7%), Germany and Lithuania (both -0.3%).

The year on year growth rates were positive for six countries and negative for five, Eurostat adds.

Eurozone narrowly avoids technical recession

Newsflash: the eurozone has avoided falling into recession, despite Germany’s economy contracting and France stagnating in the last quarter.

GDP across the eurozone, and the wider European Union, was flat in the fourth quarter of 2023, data from Eurostat shows.

That follows the 0.1% contraction in the third quarter, and means Europe has narrowly avoided a technical recession (two negative quarters in a row).

The growth reported in Italy (_0.2%), Spain (+0.6%) and Portugal (+0.8%) this morning will have helped keep the eurozone away from another contraction.

Nick O’Reilly, restructuring and recovery director at accountancy firm MHA, predicts there will be more large administrations in 2024:

Following the news that England and Wales saw the most company insolvencies since 1993 last year, O’Reilly says:

“Throughout 2023 we saw a steady rise in the number of reported corporate and personal insolvencies which we saw reflected on the ground in our work. This growth has been primarily driven by smaller businesses having difficulty paying back government COVID support leading to an uptick in the number of Creditor’s Voluntary Liquidations.

“However, as we head further into 2024, we are likely to see more large-scale administrations compared to 2022 and 2023, as the impact of high interest rates begins to bite even further. This year is likely to be the busiest 12 months for insolvencies since 1993 as similar challenging conditions to 2023 will prevail — ongoing conflicts in Ukraine and the Middle East, falling house prices, still low levels of consumer confidence — combined with the lack of availability of interest payment holidays. This is highly likely to lead to some high-profile casualties.”

England and Wales see most company insolvencies since 1993

Newsflash: the number of company insolvencies in England and Wales has hit a thirty-year high.

The Insolvency Services there were 25,158 registered company insolvencies in England and Wales in 2023.

This is the highest annual number of company insolvencies since 1993, as firms across the country were hit by high interest rates and the squeeze on consumer spending.

Last year there were 20,577 creditors’ voluntary liquidations (CVLs), in which a company is voluntarily wound up after running out of money, plus 2,827 compulsory liquidations, 1,567 administrations, 185 company voluntary arrangements (CVAs) and two receivership appointments.

One in 186 active companies (at a rate of 53.7 per 10,000 active companies) entered insolvent liquidation in 2023.

So, as there are more companies in existance than 30 years ago, the 2023 rate remained much lower than the peak rate of 94.8 insolvencies per 10,000 active companies during the 2008/09 recession.

Back in the UK, there’s a small pick-up in the number of mortgages being agreed.

The Bank of England reports that 50,500 loans for house purchases were agreed in December, up from 49,300 in November.

And in a boost to borrowers, the ‘effective’ interest rate – the actual interest paid – on newly drawn mortgages fell by 6 basis points to 5.28% in December.

This is the first drop since November 2021.

Updated

The GDP data keeps coming… with Portugal reporting that its economy grew by 0.8% in the last quarter of 2023.

Statistics Portugal adds that GDP grew by 2.2%, year-on-year, in Q4 2023, explaining:

The contribution of domestic demand to the year-on year growth rate of GDP remained high in the fourth quarter, with an acceleration in private consumption and a slowdown in investment.

The contribution of net external demand to the year on-year rate of change of GDP became positive, with Exports of Goods and Services in volume increasing more intensely than Imports.

Germany’s economy remains stuck in “the twilight zone between recession and stagnation”, says Carsten Brzeski, ING’s global head of macro.

Following the news that Germany shrank by 0.3% in October-December, Brzeski argues that the country is probably in a shallow recession:

The year 2023 was the first full year since 2020 in which the German economy contracted (by -0.3% year-on-year). The GDP numbers from previous quarters were revised.

As a result, the German economy has just avoided a technical recession (ie two consecutive quarters of contraction). But with an average quarterly growth rate of 0% QoQ since the second quarter of 2022, the German economy is anything but fast-growing.

The best way to describe the state of the German economy is probably that it is in a shallow recession. In fact, the economy remains stuck in the twilight zone between recession and stagnation.

Italy grows by 0.2%

While Germany and France struggle, Italy has beaten expectations!

Italy’s economy grew by 0.2% in the fourth quarter of last year, statistics body ISTAT reports, beating expectations for no growth in Q4, despite weak domestic demand.

On a year-on-year basis, GDP in the euro zone’s third largest economy was up 0.5%.

Istat reports:

The quarter on quarter change is the result of a decrease of value added in agriculture, forestry and fishing and of an increase in that of both industry and services.

From the demand side, there is a negative contribution by the domestic component (gross of change in inventories) and a positive one by the net export component.

Germany on brink of recession as economy shrinks

Newsflash: Germany’s economy contracted in the final three months of last year, putting Europe’s largest economy on the brink of recession.

Statistics body Destatis reports that German GDP shrank by 0.3% in Q4 2023, in line with forecasts.

That follows flat GDP in both the second and third quarters of last year (Q3 has been revised up from a 0.1% fall).

Destatis says:

After the German economy more or less stagnated in the first three quarters, economic performance decreased in the fourth quarter of 2023.

Compared with the previous quarter, there was a marked decline, in particular, in gross fixed capital formation in construction and in machinery and equipment after price, seasonal and calendar adjustment

Charlotte de Montpellier, ING’s senior economist for France and Switzerland, says there are “few indicators” that suggest the French economy will pick up strongly in the first quarter of 2024.

De Montpellier writes:

In fact, we expect stagnation to persist. We expect the French economy to recover only gradually in the course of 2024, with growth picking up slightly in the second quarter and then accelerating in the second half of the year.

This recovery should take place thanks to more dynamic consumption against a backdrop of falling inflation and slightly improved purchasing power. Added to this will be the impact of a tight labour market. We expect growth to be even weaker in 2024 than in 2023, at 0.5% compared to 0.8%.

Back in the UK, the slowdown of grocery price inflation has stalled this month, according to data from data provider Kantar.

Kantar reports that supermarket prices were 6.8% more expensive than a year ago in January, slightly lower than the 6.9% drop in the year to December.

The Czech economy grew by 0.2% in the fourth quarter versus the previous three months.

That’s in line with expectations, and shows a return to growth after Czech GDP shrank by 0,6% in Q3.

On a year-on-year basis, the economy fell 0.2% in real terms, according to a flash estimate by the Czech Statistics Office.

Austria escapes recession

Over in Austria, the “downward trend in the domestic economy observed last year” was halted in the final few months of 2023, statistics body WIFO says.

WIFO reports that Austria’s economy grew by 0.2% in Q4 2023, better than the 0.2% contraction expected.

That follows two quarters of negative growth – -1.1% in Q2, and 0.5% in Q3 – meaning Austria has escaped a technical recession.

WIFO reports that Austria’s industrial economy expanded by 0.4% in Q4, while the services sector stagnated and construction shrank by 1%.

For 2023 as a whole, Austria’s economy shrank by 0.7%.

Spain’s economy minister, Carlos Cuerpo, has said the pick-up of growth in Q4 2023 is a good starting point for this year.

Reuters reports:

Economy Minister Carlos Cuerpo said that trend was expected to continue into 2024.

The fourth-quarter reading “provides a good starting point to meet our target of 2% growth in 2024,” Cuerpo said in a recorded video message.

Spain grows by 0.6%

Newsflash: Spain’s economy grew at a faster pace in the final quarter of 2024.

Spanish GDP expanded by 0.6% in the October-December quarter, up from growth of 0.4% in July-September.

That’s faster than the 0.2% growth forecast by economist, which may mean today’s eurozone GDP report is a little stronger than expected….

On an annual basis, Spain’s fourth-quarter economic output expanded by 2%, beating the average estimate of 1.5% in a Reuters poll.

Here’s a chart showing French GDP over the last three years:

Here’s economist Julian Jessop on this morning’s French GDP report:

In the City, Diageo, the world’s top spirits maker, has missed first-half sales estimates this morning, following a sharp fall in demand in Latin America.

Diageo has reported that organic net sales fell by 0.6% in the second half of 2023, driven by a $310 million or 23% decline in the Latin America and Caribbean region.

Europe performed slightly better, with organic net sales growing 3%, primarily driven by double-digit growth in Turkey and high single-digit growth in Great Britain and Ireland (partly due to strong growth in Guinness).

Diageo’s brands also include Johnnie Walker, Tanqueray, Baileys, Smirnoff, Captain Morgan, Crown Royal and Don Julio.

Debra Crew, Diageo’s CEO, says:

The first half of fiscal 24 was challenging for Diageo and our sector, particularly as we lapped strong growth in the prior year and faced an uneven global consumer environment. Excluding LAC, our group organic net sales grew 2.5%, driven by good growth in Europe, Asia Pacific and Africa. While North America delivered sequential improvement in line with our expectations, we are focused on returning to high-quality share growth as consumer behaviour continues to normalise in our largest region.

As previously announced in November 2023, materially weaker performance in LAC, driven by fast-changing consumer sentiment and high inventory levels, significantly impacted total business performance.

HSBC fined 57 million pounds for deposit protection failures

Newsflash: The Bank of England has fined HSBC bank £57.4m for failing to protect some customer depositors for several years.

The BoE’s Prudential Regulation Authority said in a statement the bank failed to accurately identify deposits that were eligible for Britain’s Financial Services Compensation Scheme - which protects customer cash up to 85,000 pounds.

The failings occurred for HSBC Bank (HBEU) between 2015 and 2022, and for HSBC UK Bank between 2018 and 2021, says the PRA,

This is the second highest fine imposed by the PRA, which it says “reflects the seriousness of the failings.”

Sam Woods, Deputy Governor for Prudential Regulation and CEO of the PRA, said:

“The serious failings in this case go to the heart of the PRA’s safety and soundness objective. It is vital that all banks comply fully with our requirements around preparedness for resolution.

HBEU fell far short of its obligations in this area, and failed to disclose its failings to us in a timely manner. These failures led to today’s action, including the significant fine.”

The news that France’s economy failed to grow in the fourth quarter of 2023 comes as French farmers hold protests being dubbed the “siege of Paris.”

Farmers argue they are being hit by regulations, taxes and falling pay.

Yesterday, a tractor strike stopped traffic on eight main motorways into the capital, prompting the French government to warn farmers that any action to block access to Paris’s main market for fresh food would be crossing a red line.

President Emmanuel Macron held a crisis meeting with key cabinet ministers, on what was being called “Operation Paris Siege”. Prisca Thevenot, a government spokesperson, said announcements would be made on Tuesday. “The whole government and the president are mobilised,” she said.

France's economy stagnates in Q4 (and Q3)

Newsflash: France has avoided falling into a technical recession, after stagnating in the last half of 2023.

Statistics body INSEE has got eurozone GDP day (details here) up and running by reporting that France’s economy was stable in October-December, with growth of 0.0%.

Trade supported the French economy, while its domestic economy struggled.

INSEE explains:

Final domestic demand (excluding inventories) contributed negatively to GDP growth this quarter (‑0.1 points after +0.4 points in Q3 2023), due to the decrease of gross fixed capital formation (GFCF, ‑0.7% after +0.2%) and of household consumption (‑0.1% after +0.5%).

Conversely, foreign trade recovered in Q4 2023 and contributed positively to GDP growth (+1.2 points after ‑0.1 points). Imports fell sharply (‑3.1% after ‑0.4%), while exports remained virtually unchanged (‑0.1% after ‑0.6%).

Finally, the contribution of inventory changes to GDP growth was negative again this quarter (‑1.1 points after ‑0.3 points in Q3 2023).

France’s GDP for the third quarter of 2023 has been revised up too, to show zero growth, not the 0.1% contraction previously reported.

Over 2023 as a whole, France’s economy grew by just 0.9%, down from 2.5% growth in 2022.

Updated

If it’s poor, today’s eurozone GDP data could prompt the European Central Bank into starting to cut interest rates this year, perhaps as early as April.

Michael Hewson, analyst at CMC Markets, explains:

The French economy is predicted to improve modestly to 0% in Q4 from -0.1% in Q3, however there is considerable downside risk to this estimate if recent PMI numbers are any guide.

In Italy the picture looks little better with a stagnation also expected, and a modest slowdown from 0.1% in Q3, while in Germany the economy is expected to be in recession with a -0.1% contraction in Q3 followed by a bigger -0.3% contraction in Q4.

The only silver lining is Spain where the economy is expected to grow by 0.2%, however that is unlikely to be enough to prevent the bloc sliding into a technical recession with another quarterly contraction of -0.1% following a similar contraction in Q3.

UK shop prices rise at slowest pace since May 2022

Inflation across UK shops has fallen to its lowest level since May 2022, as households benefitted from a slowdown in price rises of food and other goods.

Annual shop price annual inflation eased to 2.9% in January, new data from the British Retail Consortium and NielsenIQ show. That’s down from 4.3% in December, meaning prices are still rising, but at a slower rate.

Food inflation decelerated to 6.1% in January, down from 6.7% in December, helped by a fall in the price of tea and milk, Alcohol, though, remained more expensive than a year ago due to increased duties, the BRC says.

Fresh food inflation dropped to 4.9%, down from 5.4% in December, while non-food inflation eased to just 1.3% in January, down from 3.1% in December.

This may cheer the Bank of England, which is due to set UK interest rates at noon on Thursday.

Helen Dickinson, chief executive of the British Retail Consortium, said:

“Some New Year cheer as January shop price inflation slid to its lowest level since May 2022. Non-food goods drove the fall, as many retailers offered heavily discounted goods in their January sales to entice consumer spend amidst weak demand.

Good news for the morning brew as the price of tea and milk fell, while evening tipples remained more expensive on the back of increased alcohol duties.

Introduction: It's eurozone GDP day

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

We get a major healthcheck on Europe’s economy this morning, as new GDP data for across the eurozone is released.

Growth figures for France, Germany, Italy, Spain, Austria and Portugal will be released over the next few hours, culminating in the first estimate of eurozone growth in the final quarter of 2023.

And it may show that the eurozone is in recession. Economists predict that GDP in the single-currency bloc shrank by 0.1% in Q4 2023. If so, that would be the second quarterly contraction in a row (GDP fell 0.1% in July-September), meeting the technical definition of a recession.

The eurozone economy has been weighed down by high interest rates, and the cost of living squeeze caused by the jump in energy and food prices after Russia’s invasion of Ukraine.

The euro weakened yesterday ahead of today’s data, as Tony Sycamore, market analyst at IG, explains:

EUR/USD is trading lower at 1.0832 (-0.18%) ahead of the EA flash GDP data, expected to show a second consecutive quarter of contraction (-0.1% exp) and confirm the Euro Area entered recession.

Also coming up today

In a busy morning for economic data, we’ll also learn if UK grocery inflation fell in the last month, and whether lenders approved more, or fewer, mortgages.

The US economy, which has been doing rather better than Europe, will also be in focus, with the latest JOLTS report into job vacancies, a consumer confidence report and a house price index.

We also get a healthcheck on the global economy, with the International Monetary Fund releasing an update to its world economic outlook this afternoon.

There will also be disruption on UK railways today, as members of the Aslef union at Southeastern, Southern/Gatwick Express, Great Northern, Thameslink and South Western Railway strike in an ongoing pay dispute.

The agenda

  • 6.30am GMT: French GDP report for Q4 2023

  • 8am GMT: Kantar’s latest UK grocery inflation data

  • 8am GMT: Spanish GDP report for Q4 2023

  • 8am GMT: Austria’s GDP report for Q4 2023

  • 9am GMT: Germany’s GDP report for Q4 2023

  • 9am GMT: Italy’s GDP report for Q4 2023

  • 9.30am GMT: Portugal’s GDP report for Q4 2023

  • 9.30am GMT: UK mortgage approvals for December

  • 10am GMT: Eurozone GDP report for Q4 2023

  • Noon GMT: Mexico’s GDP report for Q4 2023

  • 1pm GMT: IMF to publish its January World Economic Outlook Update

  • 2pm GMT: US house price index for November

  • 3pm GMT: Conference Board index of US Consumer Confidence

  • 3pm GMT: JOLTS survey of US job openings

Updated

 

Leave a Comment

Required fields are marked *

*

CAPTCHA

*