Eurozone growth slows sharply as French and Italian economies shrink – as it happened

Graeme Wearden

from on 2020-01-31 15:11 (#4YPSG)

Rolling coverage of the latest economic and financial news, as France's economy contracts by 0.1% in the last quarter

Latest: Eurozone growth slows to just 0.1%
Italy shrank by 0.3%... French GDP fell 0.1%
Contraction is blow to Macron
But Spain and Belgium have grown

3.11pm GMT

Time for a quick recap

Growth in the eurozone has almost fizzled out in the last quarter, hit by weak internal demand and a slowing global economy.

3.06pm GMT

Britain's friends over the channel are threatening to block the rescue of British Steel.

The French government aren't happy about China's Jingy Group buying British Steel - which owns a factory making steel tracks for France's railways.

3.01pm GMT

Brexit uncertainty may has hurt UK productivity and investment, and held back growth, but it hasn't harmed David Cameron's bank balance....

2.57pm GMT

Coronavirus fears have hit Wall Street again.

The Dow Jones industrial average has fallen by 264 points, or 0.9%, to 28,595 points.

The steady drumbeat of negative headlines combined with government reactions to the spread of the virus is still roiling markets a bit and it's hard for markets to find that stability. It still feels like there is a lot of cash on the sidelines looking to buy the dip it'sjust a matter of timing it appropriately. The idea that this virus is nowhere near as deadly as the common flu in the US was sort of helping calm the situation and yet we still are seeing reactions in the market on every new person infected or passing away.

Understand the fear around the spread of the virus but the market reaction is a bit strange to me still. The reactions of governments has been extreme and will be costly, that is important for markets, but to shake the mighty S&P in the face of such powerful earnings from US companies is a bit of a head scratcher.

2.00pm GMT

Newsflash: Airline manufacturer Airbus has ben hit with fines totalling a3.592 to cover a series of bribery cases.

France's financial prosecutor has just announced the penalties, which include more than a2bn to settle corruption charges in France.

Airbus's EUR3.6 billion fine includes EUR1 billion in recovered profits from corrupt contracts

Breakdown: a2.08 billion for France, a984 million for UK, a526 million for the U.S.

1.37pm GMT

Back in the City, investment services platform Hargeaves Lansdown are the biggest FTSE 100 faller, down almost 7%.

The external market was challenging in the second half of 2019, with political uncertainty, a General Election in the UK, Brexit and world trade tariffs all raising concerns. As we have seen in previous unpredictable periods, client confidence and retail investment flows were affected.

The Investment Association reported weak retail fund flows throughout and the suspension of the two Woodford funds also contributed to the general unease.

What price Neil Woodword? Well so far the problems haven't revealed themselves. The loss of new business must be a worry, especially if it's linked to a loss of trust as a result of the company's role in the Woodford scandal. Unfortunately the post-mortem of that debacle has only just begun. With the Woodford fund distribution guidelines announced recently, they're back under the microscope.

"For Hargreaves you'd expect to see at least a fine from the FCA, and perhaps even a class action lawsuit from shareholders. How that will affect their business remains to be seen. It could be a very long year ahead for the company."

1.16pm GMT

France's finance minister has blamed the industrial action and protests against the French government for the slump in growth in the last quarter.

"This temporary slowdown does not call into question the fundamentals of French growth, which are solid.

We are nonetheless particularly vigilant of international uncertainties."

12.29pm GMT

Capital Economics are also gloomy -- predicting that 2020 will be a weaker year than hoped.

"The fourth-quarter GDP and January consumer prices data published today support our view that Eurozone growth and inflation will be weaker this year than most expect.

This underlies our forecast that the European Central Bank will eventually be forced to loosen policy further, perhaps in the second half of the year."

12.10pm GMT

Christoph Weil, economist at Commerzbank, reckons the European Central Bank will be very concerned by the eurozone slowdown - which could spur it into more stimulus measures.

Weil says (via the FT):

"The spectre of recession is back.

"Economic growth in the eurozone came to a virtual standstill at the end of the year . . . The ECB is likely to view this with concern."

11.45am GMT

The eurozone growth slump is partly due to Donald Trump trade wars, says Barret Kupelian, senior economist at PwC.

This disappointing performance was not entirely unexpected, given that the Eurozone has been one of the economies most impacted by international trade disputes.

While we don't have a full national breakdown of the headline growth rate, some statistical agencies released estimates of the national GDP growth rate. In France, the economy shrunk by 0.1% quarter-on-quarter. However, without the inventory effect French GDP would have grown by 0.3% quarter on quarter. The Italian economy contracted in the last quarter of 2019, meaning that it didn't grow at all last year. But in contrast, Spain continued to grow in the fourth quarter, translating to an annual GDP growth figure of 2%.

11.25am GMT

European stock markets are sliding again today, hit by the unexpectedly weak growth figures and the ongoing coronavirus crisis.

Every index is down, led by Italy (down 1.4%) and Spain (-1%).

11.24am GMT

"Disappointingly slow GDP growth at the end of 2019, but in line with surveys and hard data." @ClausVistesen on #Eurozone Advance Q4 GDP and January Inflation #PantheonMacro

11.22am GMT

Josie Dent, Senior Economist at the CEBR, points out that France and Italy are now half-way into recession following their contractions last quarter.

The eurozone economy scraped through with positive growth of just 0.1% at the end of 2019. Major economies, including France and Italy recorded contractions in Q4, and politicians in these countries will be anxious for GDP growth to return, as further contractions in Q1 would put the countries in a technical recession.

However, a glimmer of home comes from the pick-up in inflation, which suggests that demand for goods and services could have risen at the start of 2020."

10.47am GMT

Here's Reuters' take on today's growth reports:

Euro zone economic growth was slower than expected in the last three months of 2019, a first estimate showed on Friday, while inflation in January picked up in line with expectations thanks to a jump in prices of food, alcohol and tobacco and energy.

The European Union's statistics office Eurostat said gross domestic product in the 19 countries sharing the euro rose 0.1% quarter-on-quarter for a 1.0% year-on-year gain.

10.36am GMT

In another blow to households, inflation across the eurozone has picked up.

Consumer prices rose by 1.4% year-on-year in December, up from 1.3%, due to rising food, alcohol and tobacco prices.

BREAKING: #Eurozone GDP inched up by 0.1% in the fourth quarter, that was slower than 0.2% quarterly growth expected by economists. @EU_Eurostat also reported annual inflation expected to be 1.4% in January, a tenth higher than Dec, while the core slowed to 1.1% growth vs 1.3%

10.12am GMT

Some snap reaction to the eurozone slowdown:

It is quite a relief, that eurozone Q4 GDP wasn't worse after the bad French & Italian numbers. But at 0.1% q/q growth remained weak at the end of 2019, while surveys only provide tentative evidence of a pick-up in early-2020. /1 pic.twitter.com/9n0rVs6aHl

Meanwhile Eurozone prelim Q4 GDP readings are ugly:
- Italy: -0.3% qoq, cons +0.1%
- France: -0.1% qoq, cons +0.2%

But Spain beat +0.5% vs 0.4% cons

Overall: EZ GDP +0.1% vs cons +0.2% (weaker than exp) $EUR

10.04am GMT

Newsflash: Growth across the eurozone, and the European Union, slowed sharply in the last quarter.

Eurozone and EU GDP both only rose by 0.1% in October-December, down from 0.3% in July-September, dragged down by Italy (-0.3%) and France (-0.1%).

According to a first estimation of annual growth for 2019, based on quarterly data, GDP grew by 1.2% in the euro area and 1.4% in the EU28.

Euro area #GDP +0.1% in Q4 2019, +1.0% compared with Q4 2018: preliminary flash estimate from #Eurostat https://t.co/x17Ql1VD2U pic.twitter.com/5FcqrG37Ir

#Eurozone GDP (Q4 - 1st est.)

YoY 1.0% v 1.1% exp. (prev 1.2%)

QoQ 0.1% v 0.2% exp. (prev 0.2%)$EUR

9.56am GMT

In a fresh sign of a Boris Bounce, UK mortgage approvals have hit their highest level since mid-2017.

Some 67,241 mortgages were signed off in December, up from 65,514 in November, and higher than expected. That may show the housing market is heating up, after being dragged back by Brexit uncertainty and political deadlock.

9.52am GMT

City news: Aston Martin has been rescued in a 500m deal, partly funded by billionaire Lawrence Stroll.

As part of the deal, the luxury carmaker will enter Formula One (where Stroll's son Lance currently wizzes about).

9.35am GMT

While Europe's economies stumble, the British pound is enjoying a little rally as the Brexit hour approaches.

Sterling is up around 0.3% this morning, hitting a1.192 against the euro for the first time since mid-December.

9.11am GMT

Newsflash: Italy's economy has also contracted, raising further concerns over the health of the eurozone.

Italian GDP shrank by 0.3% in the final three months of 2019, new figures show. That's the worst quarterly performance since early 2013.

#Italy Q4 GDP Q/Q: -0.3%; Y/Y: 0.0% ...are they protesting about Macron there too?! pic.twitter.com/7DxQzRQD8W

A simply shocking GDP number out of Italy as its economy contracted by 0.3% in the final quarter of 2019. As I explain below Italy remains in an economic depression.https://t.co/cptqxzeRMY

9.01am GMT

Asia-Pacific stock markets have suffered fresh losses today, as traders continue to be gripped by coronavirus fears.

8.49am GMT

It may not be all bad news for France.

Derek Halpenny of MUFG suggests growth could pick up this quarter, if firms restock after running down their inventories at the end of 2019:

France confirmed this morning that the economy contracted in Q4 - real GDP fell 0.1% Q/Q, well below the consensus +0.2%. The good news however is that the downside surprise reflected an inventory liquidation - excluding inventories real GDP would have expanded by 0.3% Q/Q. So we may see that growth come back in Q1.

8.39am GMT

Better news: Spain's economy has grown by 0.5% in the last quarter of 2019

That's up from 0.4% in Q3, partly making up for France's decline.

#Spanish #GDP up 0.5% quarter-on-quarter & 1.8% year-on-year in fourth quarter of 2019, following expansion of 0.4% q/q & 1.9% y/y in Q3. Q4 #Eurozone data out so far show GDP up q/q in #Spain (0.5%) #Belgium (0.4%) & #Austria (0.3%) but down 0.1% q/q in #France

8.19am GMT

Today's weak French GDP report is a blow to Emmanuel Macron, says Bloomberg:

Gross domestic product in the region's second-largest economy fell 0.1% in the fourth quarter amid a decline in exports and a huge drag from inventories. All of the economists surveyed by Bloomberg had predicted growth. Without the inventory effect, growth would have been about 0.3%, according to Bloomberg Economics.

Still, the contraction is a sting for Macron, who's already facing mass protests and strikes against his pension reforms, and which have disrupted household spending. His government has repeatedly pointed to France's relative strength in Europe as a sign his reforms of taxes and labor laws are working.

8.10am GMT

European economists are disappointed to see that France's economy has contracted.

UBS's Filip Lipev says the GDP data is worst than expected, due to weak domestic demand....and a bad start to the day.

#France's GDP unexpectedly contracts by 0.1% in Q4 (vs. +0.2% expected), after an expansion by 0.3% in Q3. Thus, full-year GDP growth came in at 1.2% in 2019, down from 1.7% in 2018. Factors include slower #domestic demand and negative impact from #net #exports. #badstartofday

#France GDP contracted by -0.1% in Q4 2019 after +0.3% q/q in Q3. Massive destocking explains the counter performance as well as strikes cost -0.1pp. Overall, political uncertainty cost -0.2% pp to French GDP in 2019. We expect French GDP to grow by 1.2% y/y in 2020, as in 2019.

7.43am GMT

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

France's economy has suffered a shock contraction, raising fresh concerns about the heart of the Eurozone - on the day Britain leaves the EU.

Uh-oh! #France's economy unexpectedly decreased in Q4. #GDP -0.1%, first decline since Q2 2016. pic.twitter.com/sjJNMcLi7G

Household consumption expenditures slowed down slightly (+0.2% after +0.4%), and total gross fixed capital formation decelerated in a more pronounced manner (GFCF: +0.3% after +1.3%). Overall, final domestic demand excluding inventory changes slowed down compared with the previous quarter: it contributed to +0.3 points to GDP growth, after +0.7 points.

Imports fell back this quarter (-0.2% after +0.6%) as well as exports (-0.2% after -0.3%). All in all, the contribution of foreign trade balance to GDP growth was zero, after a negative contribution (-0.3 points) in the previous quarter. Changes in inventories contributed negatively to GDP growth (-0.4 points after -0.1 points).

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