Brussels pessimistic on growth

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The gloom hanging over the EU economy deepened today after the European Commission downgraded its growth forecasts as high inflation and weak business activity take their toll.

Brussels now expects the eurozone and the wider EU to grow 0.6 per cent in 2023, down 0.2 percentage points from its September forecast. It also cut growth forecasts for next year, downgrading to 1.3 per cent for the EU and 1.2 per cent for the eurozone.

There was better news on inflation: the Commission believes the downward trend will continue with the headline figure set to fall from 6.5 per cent this year to 3.5 per cent in 2024. (Friday’s Disrupted Times will feature fresh data for October.)  

The past few days have offered mixed signals on the performance of EU member states.  

France today reported a higher than expected rise in unemployment to its highest level in two years, with younger workers and women disproportionately affected. In Germany there were signs of optimism, from investors at least, who think an economic turnaround is imminent as inflation falls and interest rates stabilise. A collapse in housebuilding however could yet result in wider damage to the EU’s biggest economy and, as in France, danger signs are flashing in its unemployment statistics.

The European Central Bank meanwhile is unlikely to offer relief in the form of interest rate cuts any time soon, as its president Christine Lagarde made clear to the FT last week.

Mario Draghi, former Italian prime minister and European Central Bank president, who has been tasked to address the EU’s falling competitiveness, told the FT that he was almost certain that Europe would have a recession by year-end.

The challenge he faces is substantial. The EU economy, in dollar terms, is 65 per cent of the size of the US economy, down from 91 per cent in 2013. Per capita, US gross domestic product is more than twice the size of the EU’s, and the gap is increasing. Europe is also lagging behind in crucial sectors such as semiconductors and the productivity gap with rivals is widening. Member states’ gripes about the bloc’s single market are the subject of a separate report by another former Italian prime minister, Enrico Letta, to be delivered in March.

In commissioning the Draghi and Letta reports, our Big Read reports, the EU has at least shown a willingness to acknowledge its problems. But fixing them and catching up with ever more competitive rivals will require far greater political will. “Europe needs an overhaul,” said one official inside the commission. “Root and branch.”

Need to know: UK and Europe economy

The official measure of UK house prices fell year on year for the first time in more than a decade, while rental costs rose at a record pace as high borrowing costs hit the property market.

The UK is struggling to attract foreign direct investment. There has been a sharp drop in the number of projects in some key sectors since the Brexit referendum. Our piece explains why.

New data highlighted a softening in the UK labour market with wage growth easing to 7.7 per cent in the third quarter.

A record number of UK households are seeking help with cost-of-living problems and charities are struggling to cope with a surge in rough sleepers across England.

Denmark could block Russian oil tankers from sailing through its waters under new EU plans to better police the west’s poorly enforced price cap on the Kremlin’s crude. The $60 cap is being almost completely circumvented, according to western officials and Russian export data. Plans to target Russian diamonds have come under fire.

Ukraine reached a deal with insurers Marsh McLennan to provide affordable cover to ships carrying grain and other critical food supplies from its Black Sea ports.

Need to know: Global economy

US president Joe Biden and Chinese President Xi Jinping are meeting in San Francisco in a bid to stabilise relations between the two countries. Ahead of the talks, Biden halted plans for an Indo-Pacific trade deal after opposition from Congressional Democrats, while China agreed to crack down on companies exporting chemicals used to make fentanyl, the synthetic opioid responsible for a huge overdose crisis in the US.

Global food price inflation is set to fall sharply, according to Rabobank, a specialist food and agribusiness bank, dragged down by falling prices of key food staples such as sugar, coffee, corn and soyabeans. Demand, meanwhile, is set to decline as consumers struggle with the cost of living.

US consumer price inflation fell more than expected to 3.2 per cent in October from 3.7 per cent the previous month, prompting Treasury yields to fall sharply and Wall Street stocks to climb. Producer prices fell by the most in seven months. US retail sales are holding up better than expected.

A costly US government shutdown has been averted after bipartisan support was secured to keep federal activity funded until early next year. But the bill leaves billions of dollars in foreign aid for Israel and Ukraine in limbo.

Chinese consumer and industrial activity expanded faster than expected in October, raising hopes that the economy could be moving on from its recent doldrums.

Japan’s economy shrank more than expected in the third quarter, highlighting the fragility of its post-pandemic recovery and complicating the Bank of Japan’s efforts to gradually unwind its easing measures.

Indonesia is the world’s largest producer of nickel, a critical mineral for new industries such as electric vehicles. A Big Read examines whether this potential can overcome vested interests and bureaucracy to lift it into the top tier of world economies.

Need to know: business

Renault urged European investors to back Ampere, its new electric vehicle arm set to float next year, setting out plans to more than double sales by 2031 and claw market share from rivals including Tesla. 

Denmark’s Ørsted, the world’s largest offshore wind developer, shook up its management team after abandoning projects in the US and slashing the value of its portfolio. Siemens Energy is restructuring its wind turbine business after steep losses. Hedge funds have profited by betting against the troubled industry.

Manchester City set a revenue record for an English Premier League football club, hitting £712mn in the 2022-23 season. It is increasing investment in media and content to further boost growth.

Big western fashion brands are not paying “ethical” prices for clothes made in Bangladesh, the country’s exporters association said. Protests over wages have sparked factory closures in the world’s second-largest garment exporter.

Can Barclays finally move on from years of strategic drift and stock market woes? A Big Read weighs up the bank’s prospects.

Wall Street bonuses are set to fall by up to 25 per cent this year as rising interest rates damp dealmaking and curtail new stock market listings.

The World of Work

Working from home is at fault for some of the big delays in UK national infrastructure projects, including the HS2 rail plan, according to a government advisory body.

McDonald’s has sacked 18 UK employees after establishing a specialist unit to handle staff complaints about allegations of sexual assault, harassment and bullying, its UK chief executive told parliament yesterday.

Just how useful is LinkedIn for working people’s lives? Can you build your brand without becoming unbearable? Listen to the latest Working It podcast.

Some good news

The Caribbean island of Dominica is creating what it says is the world’s first sperm whale reserve. Commercial fishing and large ships will be banned in the area off its western coast, a key nursing and feeding ground for the endangered mammals.

Whale mural in Dominica
People walk past a mural of a whale created by artist Marcus Cuffi in Roseau, Dominica, © AP

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