NEWSFLASH: The eurozone has escaped recession, and beaten forecasts for growth at the start of this year.
GDP across the eurozone expanded by 0.3% in January-March, statistics body Eurostat reports.
This means the eurozone’s shallow recession is over – its GDP shrank by 0.1% in both the third and fourth quarters of last year, which was a technical recession.
Eurozone growth has been held back by high interest rates, as the European Central Bank has battled inflation, while the cost of living crisis hit consumer spending.
Euro area GDP was lifted by stronger-than-expected growth in Germany, France, Italy and Spain (as we’ve been blogging since early this morning).
Ireland (+1.1%) recorded the highest increase compared to the previous quarter, followed by Latvia, Lithuania and Hungary (all +0.8%).
Sweden (-0.1%) was the only Member State that recorded a decrease compared to the previous quarter. The year on year growth rates were positive for nine countries and negative for four.
France got the day off to a good start by reporting growth of 0.2% – which was hailed by its economy minister – before Spainposted a sizzling 0.7% growth. Germany then matched France, with 0.2% growth, while Italy expanded its GDP by 0.3%.
France’s central bank governor has suggested the European Central Bank now has the confidence it needs to cut interest rates at its next meeting in early June.
Reuters has the details:
French and euro-zone inflation data released on Tuesday gives confidence the European Central Bank will be able to start lowering interest rates in early June, ECB member and Bank of France governor Francois Villeroy de Galhau said on social network Linkedin.
This year’s early Easter helped the eurozone to beat growth expectations in the first quarter of the year, say analysts at ABN AMRO.
They told clients today:
Eurozone GDP growth came in at 0.3% qoq in 2024Q1, stronger than our and consensus expectations for a more modest 0.1% rise. Today’s upward surprise comes after a 5 quarter period in which the bloc’s economy stagnated.
We only have details for some individual countries, but based on this and monthly aggregate data the strength was probably driven by net exports, services consumption (partly due to the earlier timing of easter), and stronger construction activity due to the mild winter.
Looking ahead, we expect GDP growth be somewhat weaker again in Q2 as some of the temporary supports for activity unwind, but we continue to expect a more sustained recovery in the second half of this year, supported by rising real incomes and easier financial conditions.
Home prices across the US have continued to climb, despite Americans facing higher mortgage costs.
The S&P CoreLogic Case-Shiller index shows that US house price rose by 6.4% in the year to February, up from 6% in January.
Prices in the 10 largest cities jumped by 8% per year, up from 7.4%.
Largest MoM increase since June '23. Case Shiller Home Price Index increased to 0.90% MoM percent in February from -0.10% in January. IT was the largest increase in 8 months. The S&P CoreLogic Case-Shiller 20-city home price index jumped by 7.3% YoY in February of 2024, the most… pic.twitter.com/0VTmo9xA1J
“Following last year’s decline, U.S. home prices are at or near all-time highs,” says Brian D. Luke, Head of Commodities, Real & Digital Assets at S&P Dow Jones Indices.
He explains:
“Our National Composite rose by 6.4% in February, the fastest annual rate since November 2022. Our 10- and 20-City Composite indices are currently at all-time highs.
For the third consecutive month, all cities reported increases in annual prices, with four currently at all-time highs: San Diego, Los Angeles, Washington, D.C., and New York. On a seasonal adjusted basis, our National, 10- and 20- City Composite indices continue to break through previous all-time highs set last year.”
Over in the US, wages are rising faster than the country’s central bank would like.
US wages and salaries increased by 1.1% in the first quarter of this year, matching the growth in the two previous quarters.
And in the 12 months to March, wages and salaries increased by 4.4%, and by 4.3% for private industry workers.
The persistence of wage growth could encourage the US Federal Reserve to take its time on rate cuts.
Paul Ashworth, chief North America economist at CapitalEconomics, points out that productivity growth is an important factor:
The big question is whether wage growth is low enough to be consistent with hitting the 2% price inflation target on a sustained basis? 4.3% is still well above the pre-Covid average, but productivity growth is also significantly higher.
Anthony Codling, analyst at RBCCapitalMarkets, says rising mortgage approvals are good news for housebuilders:
Given the recent increases in mortgage rates it was comforting to see mortgage approvals rise in March by 1.3% (seasonally adjusted) to 61,300, a level 20% higher than they were one year ago.
We continue to believe that the UK housing market is slowly recovering even in the face of stubborn economic, mortgage rate headwinds, and election date uncertainty.
But, there are also forecasts that the recovery will tail off, as borrowers are facing rising mortgage rates.
Hina Bhudia, partner at KnightFrankFinance, says the recovery in housing market activity continued into March:
At 61,300, mortgage approvals for house purchase are now approaching the 65,000 or so monthly approvals we saw during the three years leading up to the pandemic.
“The market is currently dominated by buyers that really need to move, and that’s unlikely to change in the near-term. Mortgage rates are rising once again, and both Natwest and Santander raised rates on their product ranges this morning.
“That will inevitably cause some would-be buyers to sit out this spring selling season, which should be gathering pace this week. The sun is out and buyers are returning from their Easter break, so we’d usually expect these to be the busy weeks before the summer, however the uncertain outlook for mortgage rates will undoubtedly weigh on activity.
“It’s not just buyers that are frustrated. The lenders are eager to rebuild their businesses after a subdued 2023, however they are constrained by stubborn inflation and the resulting impact on their cost of funding.”
Peter Arnold, EYUK chief economist, warns that mortgage rates are set to edge up further, as the impact of higher swap rates feeds through. That means the recovery in mortgage approvals will continue to cool, Arnold predicts:
“The recovery in mortgage demand continued in March, with approvals for new house purchases rising to 61,325, an 18-month high.
However, the increase in mortgage interest rates over recent months appears to have taken some of the momentum out of the recovery, with the rise in approvals between February and March being much smaller than the previous two months. Net mortgage lending slipped to just £0.3bn in March, from £1.6bn in February, but February’s outturn had been flattered by a temporary slump in repayments.
“With swap rates having climbed further during April, and mortgage rates continuing to edge up in response, the EY ITEM Club expects the recovery in approvals to continue to cool in the near-term.
Canada has joined the GDP party, but its growth figures are a bit of a damp squib.
Canadian growth slowed in February, with GDP rising by 0.2% in February – weaker than the 0.3% expected – following a 0.5% gain in January.
Statistics Canada says:
Services-producing industries (+0.2%) led the growth for a second month in a row, fuelled by gains in transportation and warehousing.
The goods-producing industries aggregate was essentially unchanged as the mining, quarrying, and oil and gas extraction sector expanded while the utilities and manufacturing sectors contracted in February.
Fiona Cincotta, senior financial market analyst at CityIndex, says:
The FTSE 100 is rising on Tuesday and is set to record its second straight month of gains, boosted by upbeat corporate earnings and despite mixed data from China.
HSBC is up 2.5% after the bank posted better-than-expected pretax profits and announced a $3 billion share buyback, offsetting the news that CEO No Quinn will retire. The Asian-focused bank posted a 3% rise in revenue to $20.8 billion, well ahead of the $16.94 forecast. Pre-tax profit was $12.65 billion, down 2% annually, but still ahead of estimates.
Adding to the good news, the British Retail Consortium noted that inflation was easing in the UK as shop prices rose at the slowest pace in more than two years in April. The data adds to signs that inflationary pressures are cooling, which could bring some relief to the Bank of England as policymakers consider when to start cutting interest rates.
Heavyweight miners were in edging higher after Chinese factory activity expanded at the fastest pace in 14 months in April thanks to rising new export orders.
McDonald’s misses sales estimates amid spending squeeze and boycotts
A McDonald’s restaurant at a shopping mall in Kuala Lumpur. Photograph: Vincent Thian/AP
The fast-food restaurant business McDonald’s has missed sales forecasts as boycotts over war in the Middle East hit its takings.
McDonald’s has reported that global sales rose by 1.9% in January-March, missing Wall Street’s forecast of a 2.1% increase.
McDonald’s says that like-for-like sales in its international markets division were slightly negative, falling by 0.2%, as the segment “continued to be impacted by the war in the Middle East”.
CEO ChrisKempczinski says:
Our global comparable sales growth in the first quarter marks 13 consecutive quarters of positive comparable sales growth with 30% growth over the last four years.
As consumers are more discriminating with every dollar that they spend, we will continue to earn their visits by delivering leading, reliable, everyday value and outstanding execution in our restaurants.
McDonald’s has been hit by boycotts across the Middle East and in Muslim-majority markets like Indonesia and Malaysia since October, AP reports, when its Israel franchise announced shortly after the Hamas attack of 7 October that it would be donating free meals to the Israeli military.
McDonald’s took control of this franchise from Alonyal Ltd at the start of April.
Full story: Eurozone exits recession as ‘big four’ economies beat forecasts
Larry Elliott
The eurozone has bounced back from its shallow technical recession after a stronger than expected performance by its “big four” economies in the first three months of 2024.
After two successive quarters of 0.1% contraction in the second half of 2023, the 20 nations that use the single currency posted growth of 0.3% between January and March, my colleague Larry Elliott writes.
Figures from the European Commission’s statistical agency – Eurostat – showed the eurozone had put in its best growth performance since the third quarter of 2022. Financial markets had been expecting 0.2% growth.
Lower energy prices, falling inflation, rising real wages and the prospect of cuts in interest rates helped to boost activity after a downbeat 2023 in which the eurozone only grew in one quarter.
Traders are wagering that the BoJ will be cautious about raising interest rates higher, while the dollar is benefiting from bets that the US Federal Reserve will be cautious about cutting US rates this year. That is putting pressure on the yen.
Anglo American’s chairman, Stuart Chambers, has assured shareholders over the company’s future resilience days after rejecting the £31bn takeover proposal from larger rival BHP.
He told shareholders gathered for the company’s Annual General Meeting in London today that the board had unanimously agreed to oppose BHP’s “opportunistic” approach in the “clearest terms” because it undervalued the company.
When questioned by one shareholder, Chambers said the UK’s takeover code meant the board would be unable to elaborate on its decision beyond the statement it released on Friday.
“But I will be meeting with shareholders and listening very carefully, particularly [to] the larger ones in the top 30 of the register, to hear what they feel,” Chambers said.
He added:
“The board doesn’t buy or sell the company - the shareholders decide.”
Back in the UK, more than 400 jobs are at risk as the consumer healthcare company Haleon plans to shut a manufacturing site in Berkshire.
Haleon is planning to shut down its manufacturing site in Maidenhead by 2026, a move which will affect 435 jobs.
That factory makes Haleon products such as Sensodyne toothpaste and Parodontax mouthwash.
A Haleon spokesperson told Reuters:
Following a strategic review of our global manufacturing capabilities, we have determined that our Maidenhead site is no longer a viable option for the manufacture of our products.
The Guardian reported in July last year that Haleon was planning widespread layoffs in the UK and around the world, a year after being spun off from Britain’s second-biggest drugmaker GSK.
The Eurozone economy exited stagnation “with a bang rather than a whimper”, says Moody’s Analytics’ senior economist Kamil Kovar.
Kovar says the “almost normal above-consensus growth of 0.3%” could encourage the European Central Bank to take cautious approach to interest rate cuts:
This confirms that 2024 will mark the long-postponed recovery in euro zone.
However, it was not all cheers, with details showing some weakness beneath the strong headline figure: consumptions was still weak in many places, and only strong construction, driven by warm weather, and increase in net exports ensured the strong number. Still, the ECB hawks will point to the strong GDP number as argument that ECB can take its rates lower gradually.
A June cut will still occur, but a further cut in July just became bit more unlikely.”
There’s not much financial market reaction to the eurozone’s better-than-expected growth report.
The euro has gained about 0.06% to $1.0725 against the US dollar against this morning. It’s gained 0.2% against the pound, dragging sterling down to €1.1694.
Kathleen Brooks, research director at XTB, says:
The euro is back above $1.0720 vs. the US dollar after stronger than expected European GDP for Q1. Quarterly GDP rose by 0.3%, which was stronger than the 0.1% expected, and ‘bounced’ back from the -0.1% dip in growth registered in Q4.
Growth was broad-based across the currency bloc.
However, southern European economies continue to outperform their Northern counterparts.
But, this is unlikely to influence the European Central Bank, Brooks argues:
The interest rate futures market is still expecting the ECB to cut rates in June, due to the April inflation print, which was in line with expectations at 2.4%.
Core prices were slightly higher than expected at 2.7%, however this is still lower than the 2.9% recorded for March and the lowest level for nearly 2 years.
German and French CPI also registered 2.4% annual CPI growth, which is within touching distance of the ECB’s 2% target.
