Newsflash: the eurozone has fallen into recession, new data shows, as its economy contracted over the winter.
GDP across the euro area shrank by 0.1% in the first quarter of this year, downgraded from a previous estimate that the economy stagnated.
That follows a 0.1% contraction in GDP in the fourth quarter of last year, meaning the eurozone has shrunk for two quarters in a row – the standard definition of a recession.
It was dragged down by Ireland, where GDP fell by 4.6% in the first quarter of this year – although economists have questioned whether that really reflects the performance of the Irish economy.
Lithuania’s economy shrank by 2.1%, while the Netherlands contracted by 0.7%,
Germany, Europe’s largest economy, shrank by 0.3% and is also in recession.
Poland (+3.8%) recorded the highest increase of GDP compared to the previous quarter, followed by Luxembourg (+2.0%) and Portugal (+1.6%).
Europe’s economy has been hit by the economic disruption caused by the Ukraine war, which has pushed up energy and food prices.
That had prompted a series of interest rate rises, as the European Central Bank tried to battle higher inflation.
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The eurozone slipped into recession in the first three months of the year, after official figures were revised to show the bloc’s economy shrank as the rising cost of living weighed on consumer spending.
Figures from Eurostat, the EU’s statistical agency, showed gross domestic product (GDP) fell by 0.1% in the first quarter of 2023 and the final three months of 2022 after revisions to earlier estimates. A technical recession is generally defined as two consecutive quarters of negative growth.
Previous estimates suggested the single-currency bloc had narrowly avoided recession with zero growth in both quarters.
The updated figures showed the wider EU swerved a recession after GDP rose by 0.1% in the first three months of the year, after a contraction of 0.2% in the final quarter of 2022.
The UK avoided entering a recession at the start of the year, while growth in the US also remained positive. However, GDP volumes in the eurozone and the EU are more than 2% higher than the level recorded in the final quarter of 2019 before the Covid pandemic struck – unlike in the UK, where the economy remains 0.5% smaller.
More here.
The wider European Union avoided falling into recession last winter.
GDP across the EU rose by 0.1% in January-March, after shrinking by 0.2% in October-December, meaning it avoided two consecutive quarterly falls in a row.
Poland was the fastest-growing EU member, with its GDP rising by 3.8% in Q1 2023.
The news that the eurozons has fallen into recession is “not a major surprise”, Holger Schmieding, chief economist at Berenberg, tells clients today:
He says:
When Putin started to close the Nord Stream 1 gas pipeline in stages last June, we had predicted that the spike in gas and electricity prices and gas shortage fears would likely push the Eurozone into recession over the winter.
Instead, two other aspects are noteworthy, Schmieding adds:
First, initial data had suggested that the Eurozone had avoided a recession, with stagnation in late 2022 and even slight growth in early 2023, causing observers like us to raise our calls.
Second, whereas the Eurozone had coped with the Putin shock rather well over the winter, two unrelated factors turned the underlying expansion in economic activity into a contraction in real GDP in early 2023. Without an Irish accounting quirk and a post-COVID-19 plunge in German government spending, the Eurozone economy would have printed growth of almost 0.4% qoq in Q1, in line with the solid PMI readings in early 2023 and a 0.23% qoq gain in gross value added in Q1.
The cost of subsidising UK energy costs for households and businesses last winter hit almost £40bn.
New government figures show that protecting households and businesses from spiralling energy bills between October 2022 and March 2023 cost £39.3bn.
That is the most ever provided to subsidise household bills in UK history, and works out at £215m per day. It follows Liz Truss’s decision to cap typical bills at £2,500 per year.
Energy Security Secretary Grant Shapps said:
“Putin’s illegal invasion of Ukraine and his reckless attempts to hold the West to ransom sent energy prices spiralling around the world.
“We acted swiftly and decisively to protect families and businesses from the full impact of that shock – covering around half a typical energy bill over winter. This helped safeguard jobs and livelihoods, and enabled many families to heat their homes.”
“And we will not stop leading the world in standing up to Putin, helping countries around the world to move away from Russian fossil fuels – just as we have done having not used any Russian gas for the past 12 months.”
There is a twist in the battle over the future of the Daily Telegraph.
Sky News are reporting that the Barclay family, which lost control of their crown jewel media assets yesterday, have tabled a proposal to restructure its debt and regain control.
The move comes a day after the Bank of Scotland appointed receivers to seize the shares owned by the Barclay family in the holding company that ultimately controls the national newspapers and the Spectator magazine.
Sky News’s Mark Kleinman explains:
Sky News has learnt that the Barclay family submitted an offer to Lloyds Banking Group on Wednesday that would have entailed the bank writing off a portion of the roughly-£1bn it is owed.
Further details of the proposal - which followed one last week and was the latest in a series made by the Barclays in recent months - were unclear, although sources said it had been rejected by Bank of Scotland, the Lloyds subsidiary which is owed the money.
Carlyle, the private equity firm which already holds a portion of debt attached to Barclay-backed companies including the online shopping business Very Group, is understood to be involved in the talks with the family.
He adds, though, that the prospects of a deal being reached by the two sides “appear remote”.
Back in the UK, retail chain Frasers has raised its stake in ASOS, again.
The online fashion chain has told the City that Frasers, the group behind Sports Direct, now owns 9.86% of ASOS’s stock, up from 8.8%.
Earlier this week, Frasers bumped up its stake from 7.4%.
Today’s move takes Frasers closes to owning a 10% stake which gives it the power to block a statutory compulsory share purchase after any takeover offer. It would give Mike Ashley, founder of Sports Direct, a seat at the table if a bid for ASOS does emerge.
My colleague Sarah Butler reported on Tuesday:
Asos is seen as a potential target after José Antonio Ramos Calamonte, the chief executive of Asos, who took over last summer, was forced to reveal a £291m loss in the six months to 28 February after sales fell by 8%, including a 10% drop in the UK amid what it called a “challenging trading backdrop”.
Povlsen and Camelot Capital Partners, a US hedge fund founded by young financier William Barker, who wants to emulate his hero Warren Buffett, both led the way in a recent £75m equity raise by Asos last month – part of refinancing package to replace a £350m loan, which was due to be repaid next year. Camelot, Asos’s second largest shareholder, has shown an interest in online fashion players, also snapping up a stake in the UK’s Boohoo in recent months.
Very weak domestic demand helped to push the eurozone into recession, says Daniel Kral, senior economist at Oxford Economics.
The eurozone’s winter contraction shows the impact of the loss of Russian natural gas and high inflation on consumer spending, reports Associated Press.
They say:
The economic growth figure for the 20 countries that use the euro currency was revised down from zero to minus 0.1% for the fourth quarter of 2022. The number for the first three months of this year also was downgraded from scant 0.1% growth to minus 0.1%.
That means the eurozone endured two consecutive quarters of declining output, which is one definition of recession often used in political and economic discussions, dubbed a “technical” recession.
The small shift in numbers doesn’t change what households already were experiencing: rising prices at the grocery store, paying more interest on their mortgages and struggling for wages that keep up with the rising cost of living.
Today’s news that the Eurozone fell into a (slight) recession should make the ECB’s policymakers pause a bit before pressing with higher interest rates, says Professor Costas Milas, of the University of Liverpool’s Management School.
Professor Milas tells us:
What worries me is Germany’s financial stress index which takes into account movements in interest rates and financial asset volatility such as the volatility of the stock market and/or the exchange rate.
Currently, the index is fairly elevated (in historical terms) which signals that Eurozone’s GDP will struggle 12 to 18 months into the future.
This is also bad news for the UK because Eurozone’s potential underperformance will also hit the UK economy on the top of current predictions that show anaemic UK growth….
As well as falling into recession, the eurozone is lagging behind major advanced economies.
The UK, for example, avoided recession last winter by growing 0.1% in October-December, and again in January-March.
The US grew faster – expanding by around 0.3% in Q1, and 0.6% in Q4 2022.
Japan’s economy made a decent start to the year, growing by 0.7% in the January-March quarter, new revised data today showed.
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2023-06-08 12:00:00Z
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