Newsflash: Europe’s economy is expected to grow faster than previously expected over this year and next, but inflation will be higher than hoped too.
The European Commission’s latest economic forecasts, just released, show that the economy “continues to show resilience in a challenging global context”.
It says:
The EU economy is managing the adjustment to the shocks unleashed by the pandemic and Russia’s aggression of Ukraine remarkably well.
Last year, the EU successfully managed to largely wean itself off Russian gas.
With fears of a recession easing, growth so far this year has been stronger than expected, they say.
The EC now expects eurozone GDP to rise by 1.1% this year, up from 0.9% forecast in February, rising to 1.6% in 2024 (revised up from 1.5%).
The wider EU economy is forecast to expand by 1.0% in 2023, an improvement on the 0.8% predict in its winter interim forecast three months ago. The recovery is expected to accelerate in 2024 with growth of 1.7% (revised up from 1.6%).
Good news for European households and businesses.
The Commission says:
The European economy has managed to contain the adverse impact of Russia’s war of aggression against Ukraine, weathering the energy crisis thanks to a rapid diversification of supply and a sizeable fall in gas consumption.
Markedly lower energy prices are working their way through the economy, reducing firms’ production costs.
Consumers are also seeing their energy bills fall, although private consumption is set to remain subdued as wage growth lags inflation.
However, inflation has also been revised upwards compared to the winter, on the back of “persisting core price pressures”.
Inflation is now expected to average 5.8% across the eurozone in 2023, and drop to 2.8% in 2024 – still above the European Central Bank’s target of 2%.
Previously, inflation was forecast to average 5.6% this year, and 2.5% in 2024.
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“We can and should be proud of the fact that the European economy is showing such remarkable resilience,” commissioner Paolo Gentolini concludes.
He says that succesful management of the energy crisis, coordination of fiscal policies, and Europe’s Recovery and Resilience Facility created to drive the recovery from Covid-19 all helped the economy do better.
But there is “no reason for complacency.”, with inflation still high, Gentolini adds:
This means we must ensure that fiscal policy is consistent with our policy priorities. In the same vein, it is important to maintain the momentum in the implementation of the Recovery and Resilience Plans.
However….the balance of risks facing Europe’s economy has “tilted back to the downside” since February, the EC fears, despite lifting its forecasts today.
Commissioner Gentolini says there are several reasons why the downside risks have increased, warning:
Core price pressures could turn out more persistent if wages accelerate more than currently projected, and without adjustment in profit margins.
Higher-than-expected core inflation would lead to a stronger reaction of monetary policy, with broad macroeconomic ramifications for investment and consumption.
Risks related to the EU’s external environment remain elevated. New uncertainties following the banking sector turbulence, or related to wider geopolitical tensions, compound the long-standing concerns about the impact of rising interest rates on vulnerable emerging markets.
And of course, Russia’s war of aggression against Ukraine continues to cast a long shadow of uncertainty over the economy.
On the positive side, more benign developments in energy prices or a faster transmission of wholesale energy price declines to consumers would lead to a faster decline in headline inflation, with positive spillovers on domestic demand.
In the first quarter of this year, GDP grew by 0.3% in the EU, which is slightly above the projection in February’s Winter Forecast, commissioner Paolo Gentolini points out, adding:
Information available at this stage for only a few countries, points to subdued consumption growth and robust investment growth, despite tighter financing conditions.
Net exports contributed to growth thanks to the improvement in the terms of trade and a strong tourism performance.
For the second quarter, survey indicators suggest continued expansion, with services clearly outperforming the manufacturing sector. In particular, the energy-intensive manufacturing sectors are still reeling from the energy shock of last year. Consumer confidence has continued its recovery from last autumn’s historic low.
The EC has mixed news for workers today, in its new economic forecasts.
On the upside, the labour market remains strong. The eurozone jobless rate is expected to remain at 6.8% this year, as in 2022, and drop to 6.7% next year.
But on the downside, wage growth is set to fall short of inflation again this year – it may take until 2024 for a “significant recovery of real wages”.
Commissioner Paolo Gentolini tells reporters in Brussels:
The EU economy continues to be underpinned by the strongest labour market in decades. Unemployment rates keep hitting record lows. And the participation and employment rates stayed at record high.
Despite the expected slowdown in economic activity, the labour market is set to remain strong.
Europe’s economy is benefitting from the decline in energy prices, commissioner Paolo Gentolini explains.
The fall in energy commodity prices has helped push up today’s growth forecasts.
Gentolini points out thaat Europe did not run out of gas last winter, as had been feared:
Wholesale prices of gas and electricity in the EU have come down significantly from the peaks of last year, and continued declining even after the winter forecast.
Thanks to effective diversification of supply and a sizeable fall in consumption – also supported by mild winter temperatures – the major concern for the European economy, that is a disruptive shortage of gas supply, did not materialise.
Gas prices reached €35 per Megawatt hour at the end of last week, the lowest level since summer 2021 (and much lower than last August, when it hit €343/MwH).
Gentolini adds:
Futures prices for 2023 and 2024 have declined as well. As the EU approaches the gas-refilling season, gas storages are at comfortable levels and risks of shortages have considerably abated.
European commissioner Paulo Gentiloni is holding a press conference to explain today’s new economic forecasts.
Gentiloni says the first important point is that the EU economy has avoided a recession.
He says:
It expanded in the first quarter and is set to continue growing moderately.
Second, the key factors underpinning this forecast go in opposite directions: on the one hand, declining energy prices and a resilient labour market and, on the other hand, tightening financial conditions.
Third, headline inflation is declining rapidly, but core inflation (headline inflation excluding more volatile energy and unprocessed food components) remains high.
Fourth, government deficit and debt ratios continue declining.
Fifth, the balance of risks has tilted back to the negative side.
Ireland is forecast to have the strongest GDP growth across the EU this year, at 5.5%.
Germany, once the powerhouse economy, is only expected to grow by 0.2%, with France tipped for a 0.7% expansion in today’s new forecasts.
Greece’s recovery continues, with growth of 2.4% expected this year. It’s the same story for Portugal, which also sought a bailout during the eurozone crisis a decade ago.
And it’s nul points for Sweden, whose economy is forecast to shrink by 0.5% this year – the worst in the region.
Newsflash: Europe’s economy is expected to grow faster than previously expected over this year and next, but inflation will be higher than hoped too.
The European Commission’s latest economic forecasts, just released, show that the economy “continues to show resilience in a challenging global context”.
It says:
The EU economy is managing the adjustment to the shocks unleashed by the pandemic and Russia’s aggression of Ukraine remarkably well.
Last year, the EU successfully managed to largely wean itself off Russian gas.
With fears of a recession easing, growth so far this year has been stronger than expected, they say.
The EC now expects eurozone GDP to rise by 1.1% this year, up from 0.9% forecast in February, rising to 1.6% in 2024 (revised up from 1.5%).
The wider EU economy is forecast to expand by 1.0% in 2023, an improvement on the 0.8% predict in its winter interim forecast three months ago. The recovery is expected to accelerate in 2024 with growth of 1.7% (revised up from 1.6%).
Good news for European households and businesses.
The Commission says:
The European economy has managed to contain the adverse impact of Russia’s war of aggression against Ukraine, weathering the energy crisis thanks to a rapid diversification of supply and a sizeable fall in gas consumption.
Markedly lower energy prices are working their way through the economy, reducing firms’ production costs.
Consumers are also seeing their energy bills fall, although private consumption is set to remain subdued as wage growth lags inflation.
However, inflation has also been revised upwards compared to the winter, on the back of “persisting core price pressures”.
Inflation is now expected to average 5.8% across the eurozone in 2023, and drop to 2.8% in 2024 – still above the European Central Bank’s target of 2%.
Previously, inflation was forecast to average 5.6% this year, and 2.5% in 2024.
Turkish financial assets are being hit this morning after yesterday’s presidential election failed to deliver a winner.
The lira has weakened to 19.67 against the US dollar, as traders brace for a run-off between President Recep Tayyip Erdoğan and his opponent Kemal Kılıçdaroğlu.
The cost of insuring Turkish government debt against default has risen, while bond prices have fallen.
And trading on the Istanbul bourse had to be suspended, after the market fell over 6% in pre-market trading, triggering a circuit breaker.
My colleague Jon Henley explains:
As Turkey awaits the official results of a presidential election that looks almost certain to go to a second-round runoff, some international analysts believe Recep Tayyip Erdoğan has the wind in his sails.
His chief rival, Kemal Kılıçdaroğlu, underperformed compared with polling expectations: on Friday, two polls projected the united opposition candidate would clear the 50% hurdle needed to avoid a runoff.
Mujtaba Rahman, of Eurasia Group, says the election is Erdoğan’s to lose:
Our liveblog has all the latest developments:
Private equity group Apollo has been thwarted in its attempt to buy British oilfield services and engineering firm John Wood in a £1.7bn deal.
Apollo had until later this week to either submit a formal offer or walk away from talks following its exploratory bid at 240p per share, which was rebuffed by John Wood.
But both companies have told the City this morning that Apollo does not intend to make an offer.
John Wood says:
The board remains confident in Wood’s strategic direction and long-term prospects and believes that, following a transformative year in 2022, including new executive leadership and a new strategy, Wood is well placed to deliver substantial value for shareholders.
Shares have dropped by 35% in early trading, from 219p to 140p.
Vice Media’s filing for bankruptcy protection punctuates “a relatively rapid decline for the media upstart”, says Bloomberg, adding:
The Brooklyn-based company listed both assets and liabilities in the range of more than $500m to as much as $1bn in a Chapter 11 petition filed in Southern District of New York. Fortress Credit Corp. ranked among the biggest secured creditors, with claims totaling about $475m.
The move caps a tumultuous few months for the firm. Vice shuttered its flagship TV news show and laid off more than 100 staff in late April.
The FT points out that Vice was once-feted, but is now proposing to sell its business to a consortium of its lenders:
The group, which is home to Vice News, Motherboard, Refinery29 and Vice TV, was once among the hottest new-media start-ups, winning a multibillion-dollar valuation based on its popularity with millennials attracted to an often anarchic style that reflected its roots as a punk magazine in Montreal.
However, the group has struggled to turn its mix of news, entertainment and lifestyle into lasting financial success, undermined by audiences’ shift back to more traditional media groups and the tightening grip of tech giants such as Facebook on digital advertising in recent years.
The New York Times (one of those ‘more traditional media groups’) dubs Vice a “decayed digital colossus”, adding:
Vice, which had wooed media giants, has struggled to adjust to the punishing realities of digital publishing. A group of creditors could buy Vice for $225m.
Vice, the global news publisher and TV company that was once valued at nearly $6bn (£5bn), has filed for bankruptcy protection.
The company, whose assets include Vice News, Motherboard, Refinery29 and Vice TV, has announced it has applied for Chapter 11 in the US bankruptcy court for the southern district of New York.
Vice has also agreed a deal with a consortium of its lenders, including Fortress Investment Group, Soros Fund Management and Monroe Capital.
They have agreed to buy almost all Vice’s assets for $225m, and taken on some of its liabilities.
Vice says it:
Expects to Emerge As a Financially Healthy and Stronger Company in Two to Three Months.
The sale process is likely to take two to three months. Vice expects to be given permission to keep paying employees wages and benefits, and to keep paying vendors and suppliers.
Vice says its multiplatform media brands, including VICE, VICE News, VICE TV, VICE Studios, Pulse Films, Virtue, Refinery29 and i-D, will continue to operate.
Its international entities, and the VICE TV joint venture with A&E, are not part of the Chapter 11 filing.
Vice began as a punk magazine in Montreal almost three decades ago, before expanding into digital media and TV striking deals with companies including Sky and HBO.
The move into Chapter 11 follows sales talks with multiple companies in an attempt to avoid filing for bankruptcy, according to the New York Times earlier this month.
Bruce Dixon and Hozefa Lokhandwala, VICE’s co-CEOs, explain:
“This accelerated court-supervised sale process will strengthen the Company and position VICE for long-term growth, thereby safeguarding the kind of authentic journalism and content creation that makes VICE such a trusted brand for young people and such a valued partner to brands, agencies and platforms.
We will have new ownership, a simplified capital structure and the ability to operate without the legacy liabilities that have been burdening our business. We look forward to completing the sale process in the next two to three months and charting a healthy and successful next chapter at VICE.”
Shares in Curry’s have jumped almost 6% at the start of trading, after it lifted its profit guidance this morning.
They hit their highest level since early April, at 59.45p.
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Hopes that the UK will avoid recession this year are rising, after the economy performs better than expected so far this year.
Forecasters at the EY Item Club have predicted this morning that the UK will grow by 0.2%% during 2023, rather than contracting as previously forecast.
That improvement is due to falling inflation, lower-than-expected energy bills and a resilient jobs market, they say, with UK inflation expected to start falling sharply from its current double-digit levels.
Anna Anthony, UK financial services managing partner at EY, comments:
“We’re still on the path to economic recovery and many businesses and consumers – particularly the most vulnerable in society – continue to face significant cost-of-living pressures.
This cannot be underestimated, and appropriate support must still be provided, but we are in a more optimistic place than we were a few months ago.
The recession that many thought was inevitable is now likely to be avoided and energy prices have fallen, boosting consumer and business sentiment.
This improving economic outlook means EY now expects higher bank lending this year, and next.
Total UK bank loans to businesses and households are expected to rise 1.2% this year, upgraded from a 0.1% fall forecast in February, with further growth of 2.1% forecast for 2024.
Anthony says economic conditions expected to improve over the course of 2023 and into 2024:
“While encouraging, enthusiasm should be measured, in the short-term at least. UK banks continue to face a tough environment with historically low lending growth rates.
However, the sector is in a strong capital position and continues to provide ongoing support to customers, businesses and the wider economy.
On Friday, we learned that UK GDP grew by 0.1% in the first quarter of this year, a better outcome than feared a few months ago when high energy prices and the chaos of the mini-budget were hitting the economy.
The Bank of England has also upgraded its forecasts last week, six months after warning that the UK faced the longest recession in half a century. Now, though, GDP is expected to be 2.25 percentage points higher than previously forecast over the next three years
Electronics retailer Curry’s has added to the cheery mood this morning, by raising its profit outlook for the last financial year.
It now expects to make adjusted pre-tax profits of £110-120m in the year ending 29 April, up from previous guidance of around £104m.
Curry’s says that trading in the UK and Ireland has been “better than expectations, especially in the final two months of the year”.
Profits have been bumped up by “continued gross margin improvements”, and cost efficiencies, it says.
But, like-for-like sales in the UK and Ireland were down 7% year-on-year, and fell 10% over the year in Nordic regions, where trading woes have hit the group.
Curry’s says:
Nordics trading environment remains challenging, but under new management we have made progress on margins and costs.
Also coming up today
Investors are watching Turkey closely, where yesterday’s election appears to be heading for a runoff. With the count continuing, neither president Recep Tayyip Erdoğan or his main rival Kemal Kılıçdaroğlu appear likely to reach the 50% threshold to win the presidential race outright.
We’re also expecting the EC to publishes its spring economic forecasts this morning, with new predictions for gross domestic product, inflation, employment and public finances.
The agenda
9am BST: EC spring economic forecasts
10am BST: Eurozone industrial production for March
11am BST: Spanish consumer confidence for April
1.30pm BST: New York Empire State Manufacturing Index index for May
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2023-05-15 06:50:00Z
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