Eurozone Economy Sees Strongest Growth Since 2022, Driven by Germany and France

Published

2 months ago

October 30, 2024

RTX

The eurozone economy showed unexpected resilience in the third quarter of 2024, expanding by 0.4% quarter-on-quarter, as revealed in Eurostat’s preliminary flash estimates. This growth, doubling the forecasted 0.2%, marks the eurozone’s strongest expansion since the third quarter of 2022 and reflects improved performance in key economies, including Germany and France. In contrast, the European Union’s economy grew at a stable 0.3% rate, matching the previous quarter.

Year-on-year, seasonally adjusted GDP rose by 0.9% in both the eurozone and the EU, underscoring steady recovery across the region despite broader economic uncertainties.

Germany and France Outperform Expectations

Germany, the eurozone’s largest economy, saw a 0.2% GDP increase, defying predictions of a slight contraction. Data from Germany’s Federal Statistical Office highlighted that this growth followed a revised 0.3% contraction in the second quarter. The country’s recovery was primarily driven by increased government and household consumption, though challenges remain. Economists still project that Germany will end 2024 with a 0.2% GDP decline, its first consecutive annual recession since the early 2000s following a 0.3% downturn in 2023.

France, meanwhile, posted a robust 0.4% GDP increase, building on its 0.2% growth in the second quarter. The surge was fueled by household consumption and government spending, partly attributed to post-Olympics economic activity in Paris. According to INSEE, the national statistics agency, household consumption rose by 0.5% due to increased spending on goods, energy, and information services. While trade contributed modestly to growth with both exports and imports declining, fixed investment saw a downturn, mainly in manufactured goods and services.

Diverse Economic Outcomes Across Eurozone Members

In a diverse performance across the bloc, Ireland led with a notable 2.0% quarterly GDP rise, followed by Lithuania and Spain, which saw increases of 1.1% and 0.8%, respectively. However, some eurozone members faced setbacks: Hungary, Latvia, and Sweden recorded economic contractions. Italy, the third-largest eurozone economy, stalled with no growth, missing the forecasted 0.2% expansion after a modest 0.2% gain in Q2.

Market Reactions and Economic Indicators

Financial markets reacted to the positive economic news with the euro rising 0.3% to 1.0840 against the U.S. dollar on Wednesday. European sovereign bond yields remained steady, with Germany’s benchmark Bund yield holding at 2.3%.

Despite the strong GDP data, European stocks faced losses amid broader concerns from Asian markets and upcoming economic events in the U.S. Italy’s FTSE Mib was the hardest hit among major indices, declining 1.3% as stocks in Campari and Stellantis saw significant drops. France’s CAC 40 index slipped 0.9%, driven by downturns in luxury stocks such as Kering and LVMH, which fell 3.8% and 2.5%, respectively. The Euro Stoxx 50 index dropped 0.9%, impacted by declines in luxury brands, Dutch tech firm ASML Holding, and major European banks.

Investor attention now turns to key economic reports anticipated later this week. Germany’s October inflation report, set for release later today, and eurozone-wide inflation data due tomorrow are expected to influence market expectations ahead of the European Central Bank’s next policy meeting. These figures could shape the ECB’s stance on future interest rate decisions as it navigates the path between stimulating growth and controlling inflation.

Business

Eurozone Inflation Rises to 2.4% in December, Markets Still Expect ECB Rate Cuts in 2025

Published

6 hours ago

January 7, 2025

RTX

Inflation in the eurozone rose to 2.4% year-on-year in December, up from 2.2% in November, according to preliminary data from Eurostat. While the increase matched economists’ forecasts, it highlighted ongoing inflationary pressures in the region, complicating efforts by the European Central Bank (ECB) to meet its 2% target.

On a monthly basis, consumer prices rose by 0.4%, reversing the 0.3% decline seen in November. Core inflation, which excludes volatile items like food and energy, remained steady at 2.7%, in line with expectations. Despite the stable core inflation, the persistent inflationary challenges are expected to keep the ECB focused on further action.

Among the key contributors to inflation, services remained the leading category, with an annual rate of 4%, slightly up from 3.9% in November. Food, alcohol, and tobacco prices stayed steady at 2.7%, while non-energy industrial goods saw a slight decrease in inflation, easing to 0.5% from 0.6%. Energy prices rebounded significantly, rising 0.1% year-on-year after a -2% drop in November, reflecting higher fuel costs in some eurozone countries.

Kyle Chapman, an analyst at Ballinger Group, suggested that the inflation rise was unlikely to alter the ECB’s course. “This figure does close to nothing in terms of altering the path for the ECB,” Chapman said. He noted that Frankfurt had been anticipating a temporary rise in inflation and is likely to overlook it for now.

Regional Variations in Inflation

Inflation rates varied widely across eurozone countries. Croatia led with the highest annual rate at 4.5%, followed by Belgium at 4.4%. Other significant readings included Germany at 2.8%, Greece at 2.9%, and Spain at 2.8%. In Belgium and Germany, monthly inflation rose by 0.7%, the second-highest across member states.

Ireland recorded the lowest annual inflation rate at 1%, but saw a notable monthly spike of 0.9%. In contrast, Italy, with one of the lowest annual rates at 1.4%, had only a 0.1% monthly rise. France’s inflation increased to 1.8%, the highest since August, while Spain saw a 2.8% inflation rate, the highest since July 2024.

Market Reactions

Despite the inflation data aligning with expectations, financial markets reacted mildly. Shorter-dated eurozone bond yields, which had spiked following Germany’s surprise inflation report on Monday, edged lower. The two-year Schatz yield fell 3 basis points to 2.18%, while the benchmark 10-year Bund yield held steady at 2.45%.

The euro continued its upward trend, rising 0.4% to $1.0430, as market expectations remain focused on future ECB rate cuts. Traders are anticipating a 25 basis-point cut at the ECB’s meeting on January 30, with over 100 basis points of cumulative cuts expected throughout 2025.

European equity indices traded slightly higher, with the Euro STOXX 50 and STOXX 600 up 0.2%. Germany’s DAX also gained 0.2%, while France’s CAC 40 outperformed, rising 0.4%. Italy’s FTSE MIB lagged, slipping 0.1%.

Sector-wise, luxury and consumer goods stocks outperformed, with Adidas rising 2.2%, while banks underperformed, with the Euro STOXX Banks Index down 1.1%. Notable declines were seen in Deutsche Bank, which fell 1.6%, and Ireland’s AIB Group, which dropped 1.8%.

Business

Italy in Talks for €1.5bn Deal with SpaceX Amid Local Opposition

Published

1 day ago

January 6, 2025

RTX

The Italian government is advancing negotiations for a €1.5 billion telecommunications security services contract with SpaceX, according to reports. The proposed deal, which includes encryption services for telephone and internet communications for Italy’s government and military, has been under review since mid-2023 but has faced opposition from local telecommunications providers.

The potential five-year agreement follows a visit by Italian Prime Minister Giorgia Meloni to President-elect Donald Trump in Florida, sparking speculation that Musk’s support for Trump may help expedite the deal. The Italian Intelligence Services and Defence Ministry are reported to have approved the project, which would enhance the security of critical communications across the country.

SpaceX’s services could include encrypted communication solutions for the Italian government and military, designed to enhance national security. However, the deal has faced significant resistance from local telecommunication operators, who argue that SpaceX’s business model could undermine the domestic market.

In November 2023, the lobbying group Assetel called for a review of regulations governing low-orbit satellite broadband services, particularly in regard to SpaceX’s Starlink network. The group raised concerns that SpaceX’s direct-to-consumer sales approach bypasses existing regulations, potentially circumventing rules on data storage and creating unfair competition with local telecom companies.

Italian telecom operators have been struggling with mounting debts and intense price competition. Telecom Italia reported €8 billion in net debt for the third quarter of 2023, despite selling its network to US private equity firm KKR in a €22 billion government-backed deal. Meanwhile, Swisscom’s acquisition of Vodafone Italia in December, for €8 billion, was another sign of financial strain in the Italian telecom sector.

Italy is also facing pressure to meet its broadband network expansion targets under the EU-funded Recovery and Resilience Facility (RRF). Despite receiving €113.5 billion in recovery funds, Italy is behind schedule in rolling out high-speed internet, a key part of its economic revitalization plan. Only a third of the 3.4 million buildings targeted by the €3.4 billion plan have been connected to broadband, leading the government to consider using Starlink to make up for delays.

SpaceX, which has expanded its global footprint significantly, has launched over 6,700 active satellites, serving more than four million customers across 100 countries. Starlink’s services have reached approximately 55,000 customers in Italy, and with new satellites launched in December 2024, SpaceX aims to broaden its global coverage even further.

The negotiations between SpaceX and Italy continue amid local opposition and challenges in Italy’s broadband expansion efforts, with the final decision expected to have far-reaching implications for both domestic telecommunications and international relations.

Business

Nippon Steel and US Steel Sue US Government Over Blocked Takeover

Published

1 day ago

January 6, 2025

RTX

Nippon Steel and US Steel have filed a lawsuit against the US government, alleging political interference in President Joe Biden’s decision to block Nippon Steel’s $14.9 billion takeover of US Steel. The companies claim Biden “ignored the rule of law” to curry favor with trade unions and advance his political agenda.

The lawsuit comes after Biden rejected the deal on Friday, citing national security concerns and the need for a strong, domestically-owned steel industry to support critical supply chains, including those for the automotive and defense sectors. Biden argued that allowing the acquisition would undermine US interests despite its potential to bolster Nippon Steel’s competitiveness against China’s steel dominance, which accounts for 60% of global production.

Political Context and Allegations

The proposed takeover, first announced in December 2023, had been in limbo for months. Biden’s decision to block the deal aligns with a campaign promise to protect domestic industries, particularly in Pennsylvania, a key swing state where US Steel is headquartered.

Nippon Steel and US Steel have requested a court-ordered review of the purchase, accusing the Committee on Foreign Investment in the US (CFIUS) of failing to conduct a “good faith, national security-focused regulatory review.” The companies also filed lawsuits against United Steelworkers President David McCall and Cleveland-Cliffs CEO Lourenco Goncalves, alleging “illegal and coordinated actions” to obstruct the deal.

McCall, who supported a $7.3 billion acquisition bid from Cleveland-Cliffs in mid-2023, defended Biden’s decision, stating it safeguarded national security and protected the domestic steel industry.

Japanese Concerns

The move has drawn criticism from Japan. Prime Minister Shigeru Ishiba expressed concerns about the decision’s potential impact on trade relations between the two G7 allies. “We must insist on an explanation as to why there are security concerns; otherwise, there will be no progress in future discussions,” Ishiba said on Monday.

Nippon Steel has reiterated its commitment to investing $2.7 billion in US Steel and emphasized that the acquisition would strengthen the US steel industry, particularly against competition from China.

Future Uncertainty

The lawsuit’s outcome could hinge on the next administration, but prospects remain uncertain. President-elect Donald Trump has also vowed to block the deal, arguing it would undervalue US Steel amid plans for sweeping tariffs on foreign imports.

“Why sell US Steel now when tariffs will make it a much more profitable and valuable company?” Trump wrote on Truth Social, referencing his plans to reintroduce protectionist measures similar to those from his first term.

Economic analyses of Trump’s 2018 tariffs indicate mixed outcomes: modest job gains at steel manufacturers but job losses in other sectors affected by higher steel costs.

The legal battle underscores the tensions between economic nationalism and global trade relations, leaving the fate of the acquisition—and its broader implications for US-Japan ties—in limbo.