Germany narrowly avoids recession; US retail sales slide – as it happened
Rolling coverage of the latest economic and financial news, including the latest German GDP report and a speech by Bank of England policymaker Gertjan Vlieghe
- Latest: US retail sales suffer biggest fall in 9 years
- Eurozone growth figures
- Bank of England: Brexit costs us billions
- NEWSFLASH: Germany misses recession by a whisker
- Economist: It's another black eye
4.49pm GMT
Like a bad Valentine's Day date, today's stock market rally has fizzled out after a perky start.
The FTSE 100 index has closed just 6 points higher at 7,197, having earlier hit a four-month high around 7,230 points.
US retail sales unexpectedly fell in December -1.2%, the largest decline in 9 years. Analysts had expected retail sales to have increased 0.1%. Retail sales are renowned for their volatility. Under normal circumstances one weak reading by no means constitutes a new trend. However, these dire figures feed directly into the market fear over slowing economic growth. This explains why we havre seem such a dramatic market reaction.
The figures showed a broad weakness across most sectors, fuelling concerns that the cooling of the US economy from prior quarters, could be greater than initially projected. Although interestingly this goes against the impressively strong labour market data which we saw in December and January. US futures quickly erased gains resulting in a weaker start for Wall Street.
3.30pm GMT
Back in the markets, the pound is under pressure as the UK government faces fresh defeats over Brexit tonight.
Sterling has shed more than half a cent against the US dollar to $1.278, a one-month low.
3.17pm GMT
Capital Economics are also concerned by the (apparent) slump in US retail spending; suggesting it will force the Federal Reserve to leave interest rates on hold for longer for some time:
The unexpected plunge in control group retail sales in December means that fourth-quarter GDP growth was probably nearer 2.5% annualised than the 3.1% we had pencilled in and, more worryingly, it also suggests the economy entered 2019 with less momentum than anticipated.
That doesn't mean the economy is falling into recession; after all, that decline is hard to square with the recent strength of payroll gains and the boost to households' purchasing power from lower energy prices. But with the producer price data suggesting inflationary pressures remain contained, it strengthens the case for the Fed to remain "patient" in the months ahead.
3.02pm GMT
The retail sales plunge has prompted Morgan Stanley to slash their forecast for annualised US growth in the last quarter (the official estimate has been delayed until the end of December).
They're also gloomy about the current quarter:
Morgan Stanley on retail sales: "Our 4Q real GDP tracking estimate likewise took a big hit, down to 3.1% from 3.7%... we estimate that 1Q GDP tracking could come in as low as 1%."
2.47pm GMT
The US stock market has opened in the red, as the weak retail sales figures worry traders.
The Dow Jones industrial average has shed 175 points, or 0.7%, to around 25,368.
2.31pm GMT
The latest US jobs figures aren't too hot either.
The number of Americans filing new unemployment claims jumped last week, to 239,000, a 4,000 increase.
Weekly Initial Unemployment Claims increased to 239,000 https://t.co/D2v0N4ihM8
"This is the highest level for [the 4-week] average since January 27, 2018" pic.twitter.com/7jZSCJn4oC
2.14pm GMT
Worryingly, the US retail sales report shows that 11 of 13 major retail categories showed a decline in sales last month. That includes non-store retailers (down 3.9%!), clothing stores and gas stations.
Bloomberg has more details:
Receipts at health and personal care stores fell 2%, the most since October 2016. Sales at sporting goods, hobby, musical instrument and book stores tumbled 4.9%, the biggest drop since September 2008.
2.05pm GMT
December's US retail sales figures are so bad that some economists are questioning whether they really show what's happening in the American economy.
Perhaps the shock 1.2% decline is all down to bad weather, or the US shutdown? Maybe it's a knock-on effect from Black Wednesday in November?
Interesting chart from @PantheonMacro showing big divergence in retail sales from redbook. They expect either major revision or that dec was a one-month blip. Not sure quite what to believe except the number is way off estimates. pic.twitter.com/zKeQ7ClB5c
Bigget drop in US retail sales (control group) since January 2000. Crisis ahead or just a one off No good "technical" excuses for the drop (weather fine, data quality fine despite shutdown, shutdown should affect Jan not Dec, probably not Black Friday related) pic.twitter.com/T0vORyCnZ7
1.45pm GMT
The surprise plunge in US retail sales has knocked the dollar down a little:
US #RETAILSALES drop hard.
Worst fall in 9 yrs
-1.2% for the month when +0.2% was expected.
'Core' -1.7% vs +0.4% est.#USDJPY under pressure ^KO pic.twitter.com/OIXztaoHQl
Fairly sharp USD response to retail sales miss considering the usual blah blah about seasonal adjustment struggling to respond to Black Friday. Looks like EURUSD will manage to avoid the 1.1216 hangman yet again pic.twitter.com/HAuxbdIh7R
So we finally got December retail sales, which were delayed because of the government shutdown. And they're really bad - they unexpectedly fell, posting the worst drop in nine years. U.S. yields are falling. https://t.co/jZFD5Qj9FC pic.twitter.com/aUbSNStQWr
1.40pm GMT
Newsflash: US retail sales have fallen at the sharpest rate since the financial crisis.
Retail sales fell by 1.2% in December, figures just released show. That's the biggest drop since September 2009 - the end of the last US recession.
YoY (real) retail sales growth down sharply after dismal December retail numbers. pic.twitter.com/CGcSCHEIvc
Large drop in US retail sales in January after a couple of decent months. Difficult to know whether government shutdown has impacted household consumption behavior temporarily or whether a new cautious trend in private consumption is now emerging #macrobond pic.twitter.com/6yPfVL0CIO
1.04pm GMT
Here's our news story on the impact of the Brexit vote on UK growth:
Related: Brexit has already cost UK economy 80bn - Bank rate-setter
12.41pm GMT
Back in the UK, cake chain Patisserie Valerie has been saved from closure.
Irish private equity firm Causeway Capital is financing a management buyout for company, which was dragged into administration by a 40m black hole in its accounts.
Almost 100 cafes will be rescued in the Causeway Capital deal, while another 21 sites under the Philpotts brand have been bought by AF Blakemore & Son, the family owned company which is the largest operator of Spar franchise outlets in the UK.
The two deals will save about 2,000 jobs.
Related: Patisserie Valerie saved in buyout backed by Irish private equity firm
11.58am GMT
Pablo Shah, senior economist at the CEBR, isn't impressed by today's eurozone growth figures - showing the region only expanded by 0.2% last quarter.
He sees trouble ahead:
"Today's data confirm that the Eurozone economy is now in the midst of a protracted slowdown, with risks stacked towards the downside going into 2019.
Political unrest is simmering across the euro area, while the risks of a disorderly Brexit and an escalation of trade tensions with the US remain live."
"Germany, the largest economy in the Eurozone, narrowly avoided a recession in the fourth quarter as its output remained at the same levels as the previous quarter. Italy however had no such luck as its output contracted by 0.2% for a second consecutive quarter, entering its fifth recession in the 21st century. This is likely to increase its budget deficit as a proportion of GDP in the future, which could cause friction with European authorities.
"However, most of the slack from Germany's and Italy's poor performance was offset by strong output growth in Spain, the Netherlands and France which grew at a respectable 0.3% quarter-on-quarter despite the gilets jaunes protests. Spain continues to be the poster-child of the peripheral economies, with its economy growing by an average of 0.7% quarter-on-quarter.
"Meanwhile, Italy has fallen into recession for the third time in a decade, Spain has failed to agree a budget for 2019, the Brexit deadline is looming and uncertainty over global slowdown and trade tensions is rising. The question is how long will the recovery take and what action can the ECB take to try and boost European growth, having stopped its QE programme at the end of December.
10.56am GMT
You can read Jan Vleighe's speech here:
Gertjan says slower world growth and increased Brexit uncertainty has slowed the required pace of monetary tightening. He says he needs to see evidence of stable UK growth and rising inflation before he will support the next increase in Bank Rate. https://t.co/AWn3DE9pK0 pic.twitter.com/vaAIwcR9wT
10.54am GMT
Q: What has the Bank of England learned about the impact of political uncertainty on the economy?
Gertjan Vlieghe replies that the Bank has learned that not all political uncertainty is the same.
10.46am GMT
Gertjan Vlieghe is taking questions, and is asked how soon the Bank of England might raise interest rates.
He warns that the UK economic data "is still deteriorating", so that's not a good time to raise borrowing costs. The Bank of England would need to see economic data stabilising, and then improving, first.
10.42am GMT
BoE policymaker Gertjan Vlieghe has also warned that business confidence has suffered from Brexit uncertainty, while households have barely changed their behaviour:
Jan Vlieghe notes from conversations with firms that their attitude post-vote was business as usual. However, as we have got closer to the Brexit deadline, firm behaviour has shifted and investment has contracted as the uncertainty has become more acute
However, he says that the behaviour of households has been completely different. While real household disposable income growth has tailed off since the referendum, real consumption has barely changed. Employment growth has also held up very well.
10.34am GMT
You can see Gertjan Vlieghe's comments on the economic costs of Brexit here:
10.26am GMT
Bank of England policymaker Gertjan Vlieghe has taken a pop at the Vote Leave bus, in his speech on the impact of Brexit:
Vlieghe cheekily refers to the loss of GDP for the UK since the Brexit vote in "bus units"... "That 2% of GDP is not trivial, that's 40bn, or if you prefer it in bus units, it's 800m a week."
10.19am GMT
We now have a decent picture of how Europe's economy fared in the last three months of 2018, and over the whole year. And it's not encouraging.
Both the European Union and the eurozone only grew by 0.2% in the last quarter, with Germany stagnant, Italy in recession, and France and the UK both posting modest growth.
10.04am GMT
Newsflash: Eurostat has confirmed that the eurozone economy grew by 0.2% in the last quarter, in line with its first estimate two weeks ago.
More to follow....
Euro area #GDP +0.2% in Q4 2018, +1.2% compared with Q4 2017: flash estimate from #Eurostat https://t.co/JQCdEcpOXW pic.twitter.com/XhpTZNrZS8
9.56am GMT
Striking chart from BoE's Jan Vlieghe shows just how much UK business investment has diverged from the rest of the world since the referendum pic.twitter.com/Ssc7b6Mn0n
9.56am GMT
Bank of England's Jan Vlieghe: "since June 2016 we have lost 2% of GDP relative to a scenario where there had been no significant domestic economic events. That amounts to around 40bn per year, or 800m per week of lost income" pic.twitter.com/NzQqzFkduP
9.34am GMT
NEWSFLASH: Brexit is costing the economy 800m per week in lost growth, two-and-a-half years after the EU referendum, according to a Bank of England rate-setter.
"UK growth in the past two years has been weaker than we would have expected based on the performance of the global economy alone. Based on what happened in the rest of the world we would have expected UK growth to accelerate, but actually it slowed.
"In the case of a no-deal scenario I judge that an easing or an extended pause in monetary policy is more likely to be the appropriate policy than a tightening."
9.29am GMT
Germany's economy ministry has weighed in, citing Brexit uncertainty and trade wars as key factors behind the country's slowdown.
Reuters has the details:
Britain's forthcoming departure from the European Union and trade disputes are still causing uncertainty for the German economy but the car industry is making progress in adapting to new WLTP pollution standards, the Economy Ministry said.
It added that production sites dependent on inland shipping are no longer being hampered by low water levels.
9.25am GMT
Germany's stock market has risen this morning, amid relief that its economy has avoided falling into recession.
The DAX index has gained 0.25%, helping push the Europe-wide Stoxx 600 to its highest level since November.
9.04am GMT
Here's Associated Press's take on the German growth report:
Germany narrowly avoided a recession in the fourth quarter, reporting only zero growth as foreign trade made little contribution to Europe's largest economy.
The lackluster figure released Thursday by the state statistics agency followed a 0.2% fall in output during the preceding third quarter. Business spending on machinery and equipment as well as construction supported the economy in the fourth quarter and kept Germany from suffering two straight quarters of negative growth, one definition of a recession.
8.36am GMT
Claus Vistesen, economist at Pantheon, says Germany's economy was held back by weak net trade and sluggish consumers' spending.
He fears that the eurozone growth figures, which will be updated at 10am, will be lowered from 0.2% to just 0.1% for the last quarter.
Just as bad as we feared, adding to our conviction that today's second estimate quarter-on-quarter for the eurozone as a whole will be revised down, by 0.1pp, to 0.1%.
We don't see numerical details in this report, but the statistical office provide hints, indicating that domestic demand, mainly investment in construction and machinery and equipment, and government spending supported the economy. By contrast, growth in consumers' spending remained subdued, and net exports remained a severe drag on headline GDP growth.
8.10am GMT
We don't yet have a breakdown of German GDP for the last quarter. But this chart shows how net trade had a negative impact in the third quarter of 2018 (when the economy shrank by 0.2%).
2019 looks set to have started as 2018 ended - not well. While the risks loom large, chances are that a brighter spring could still follow the grey winter if trade tensions do not escalate badly, China escapes a hard landing and the UK avoids a hard Brexit.
8.00am GMT
Ana Andrade, Germany analyst at the Economist Intelligence Unit, predicts that Germany's government may be forced to stimulate its economy this year (through higher spending):
"German weakness is attributed in part to the production disruption in the auto sector that resulted from the introduction of the EU's new emissions standards, to rising geopolitical uncertainty and the softer growth in the Chinese economy.
The economy will enter a slowdown in 2109 but this will be manageable. Still, risks to the economy in 2019 are on the downsize and are mainly external and geopolitical. It if turns out to be worst than expected, we believe the government would be willing to provide some fiscal stimulus. It is very well-placed to do so."
7.52am GMT
Carsten Brzeski of ING says Germany's economic "black eye" has taken a blow, after its economy failed to grow in the last quarter.
The German economy escaped a technical recession with the smallest margin possible. The black eye just got blacker. Still, the upside from today's data is that it can hardly get worse.
The weak performance of the German economy in the second half of the year is the result of (too many) one-offs, surfacing structural weaknesses and external uncertainties. Just think of cars, low water levels in main rivers, the trade conflict between the US and China, Brexit or the lack of investment in digital and traditional infrastructure, delays of railways and airlines as well as hardly any significant new structural reforms in the last ten years.
What a list! However, it is still not necessarily the end of a long positive cycle.
7.44am GMT
Germany used to be the powerhouse of the eurozone economy, but a cocktail of blows from home and abroad have left it nursing a bad hangover.
1) The global slowdown. The world economy has come off the boil in recent months, partly due to Donald Trump's trade war. That means less investment, so lower demand for machinery produced by Germany's industrial heartland. China, in particular, has been cutting back on imports as its economy slows.
7.32am GMT
Some economists are predicting that Germany's economy will pick up in 2019.
Here's analysts at Danske Bank:
Germany avoided a technical recession, as GDP was flat in Q4. However, based on the press release, domestic demand did fine, as both private consumption, government consumption & investments rose in Q4. Details clearly better than headline. pic.twitter.com/6zUF1PCCiN
#Germany narrowly avoided a technical #recession at the end of 2018. Q4 #GDP was flat q/q after -0.2% in Q3. Early reports say investment, household consumption and government spending all rose in Q4, but net trade was negative again. We forecast a rebound in H1.
7.24am GMT
Destatis says that domestic demand made a positive contribution to German growth in the last quarter -- that'll be household consumption and government spending.
However, trade (so often the backbone of German growth) "did not make a positive contribution".
*GERMANY NET TRADE DIDN'T CONTRIBUTE TO GROWTH IN 4Q
7.21am GMT
This chart shows how German's growth rate has slowed:
7.10am GMT
Good morning.
#Germany just avoids recession after economy stagnates in 4Q. pic.twitter.com/9AYHToQR4F
After a dynamic start into the first half of the year (+0.4% in the first quarter, +0.5% in the second quarter), a small dip (-0.2% in the third quarter, 0.0% in the fourth quarter) was recorded in the second half of the year.
For the whole year of 2018, this was an increase of 1.4% (calendar adjusted: 1.5%). Hence growth was slightly smaller than reported in January.
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