Time for a recap

Growth in the eurozone has slowed to its lowest level in over four years, as the region’s recovery runs out of steam. Eurozone GDP only rose by 0.2% in July-September, down from 0.4% in April-June.

Economists say the figures are disappointing, and weaker than expected; they could even precede a wider recession.

Italy’s growth rate fell to zero, in a blow its new government’s plans to revitalise the economy.

France did better, though; its economy grew by 0.4%, thanks to a pick-up in consumer spending and business investment.

Barret Kupelian, senior economist at PwC, believes the slowdown could cause the European Central Bank to reconsider ending its asset-purchase stimulus plan in December.

“Even though these are preliminary figures and are likely to be revised once national authorities release the fuller picture of the quarter, it is now looking unlikely that the Eurozone will reach the ECB’s growth projections of 2% for 2018. If current trends continue, the ECB could reconsider its future plans.”

Donald Trump has claimed that the stock market will plunge if his Democratic opponents do well in next week’s mid-term elections.

In the UK, retail sales growth has slowed as consumers cut back after a summer spending splurge.

Economists at the IFS have warned that yesterday’s UK budget represented a ‘gamble’ with the public finances.

The Resolution Foundation have calculated that high earners get the biggest windfall from chancellor Hammond’s tax cuts:

Just in: US consumer confidence remains strong, despite the recent turmoil in the markets.

Wall Street has opened cautiously, after a wild day yesterday which saw stocks jump, then plunge in the biggest turnaround in eight months.

While the Dow is flat, the technology-focused Nasdaq is in the red as the tech sell-off continues.

The broader S&P 500 index has also dipped.

Persistent Brexit uncertainty and Donald Trump’s trade wars are both being blamed for derailing the eurozone recovery,

Andy Scott, associate director at independent financial risk management consultancy JCRA, says last year’s strong growth has fizzled out.

“The Eurozone showed much promise during 2017. It was growing at its fastest pace in years as consumer spending was driving domestic demand. The low value of the Euro supported export growth and monetary stimulus boosted financial conditions. In the second half of 2017 the Eurozone economy grew 2.8% year-on-year; by comparison in the third quarter of this year it managed just 1.7%. The preliminary data on the current quarter points to even weaker growth.

“The data appears to show how Trump’s trade measures, a lack of clarity over Brexit and Italy’s budget dispute have resulted in significant loss of momentum for Eurozone economies, despite domestic conditions remaining favourable. So far, the EU has no real response to the Trump administration’s “America first policy”. This alongside a significant fiscal stimulus in the form of tax cuts, has materially boosted US economic growth, while global growth is slowing.

Italy’s slump into stagnation has raised fresh fears over its spending plans.

Italian government bond prices have weakened this morning, pushing up the yield (or interest rate) on the debt.

That shows traders see Italy as a riskier bet, especially if the row over its 2019 budget escalates.

That budget assumes growth of 1.5% in 2019 - nearly double what Italy has managed in the last 12 months.

Rome’s borrowing plans already breach EU rules; if the economy is smaller, then the deficit will be an even larger share of GDP.

On the other hand, Italy could argue for a Keynesian fiscal stimulus to jump-start the economy. But that’s not how Brussels sees things.

It seems likely that Europe’s economy is being hurt by rising trade protectionism.

America slapped tariffs on European steel imports this summer, prompting Brussels to hit back with levies on UA goods.

The tit-for-tat tariffs imposed between Washington and Beijing is also hurting global trade.

Associated Press explains:

Eurostat did not provide details as to why growth slowed so much. They will emerge in an updated estimate in mid-November.

But the figures are likely to fuel concerns that trade tensions around the world, notably between the U.S. and China, are having a debilitating impact on global trade. Much of the eurozone’s growth is based on exports, notably from Germany.

Nicola Nobile, lead eurozone economist at Oxford Economics, says “transitory factors, particularly in Germany” is dragging eurozone growth back.

That includes a big slowdown at German car makers, who are struggling to adjust to new pollution tests introduced after the Volkswagen emissions scandal.

In another blow, economic confidence across Europe has declined.

The European Commission’s economic sentiment index has dropped to 109.8 this month, down from 110.9 in September.

Firms reported that the business climate has deteriorated this month, which suggests the eurozone economy is continuing to weaken.

The Financial Times says that eurozone growth “stumbled in the third quarter”, increasing at a far weaker pace than expected.

These eurozone growth figures are a ‘massive disappointment’, says ING economist Bert Colijn.

He writes:

Eurozone GDP growth in 3Q came in at just 0.2% and while one-off factors have influenced the number, it does not seem that growth will return to previous rates anytime soon.

In Germany, disrupted car production will have dampened GDP growth significantly in the third quarter, weighing on the eurozone average. French GDP growth was stronger than in the first half of the year, mainly led by a consumption growth recovery, although the 0.4% increase did miss analysts’ expectations.

Perhaps more worrying was the stagnation of growth in Italy, which was the first time in four years that the economy did not post growth over a quarter. With budget discussions already tense between Rome and Brussels, this stagnation will only add to concerns.

Katharina Utermöhl, senior economist for Europe at Allianz SE, says this is the weakest growth in four years:

Aila Mihr of Danske_Research reckons it could force the European Central Bank to downgrade its growth forecasts.

Eurozone growth has now slumped to its slowest rate since the second quarter of 2014.

The eurozone’s annual growth rate has also fallen sharply, to 1.7% compared with 2.2% a quarter ago.

Bloomberg says that today’s Italian growth report is a blow to Rome’s new leadership:

Italy’s economy stalled for the first time in almost four years, putting pressure on the populist government’s ambitious spending plans.

The stagnation in the third quarter followed growth of 0.2 percent in the previous three months and it leaves Italy as the underperformer among the euro area’s major economies....

Statistics agency Istat in its preliminary report cited a contraction in industrial sectors for the weak performance. The median estimate in a Bloomberg survey was for expansion of 0.2 percent.

Italy’s government is looking for a major boost from its economic program, aiming to increase employment while letting thousands of workers retire earlier. However, the plan includes letting the deficit widen to 2.4 percent of output next year and has run into a firm “no” from the European Union.

Italy’s stock market has now lurched into the red, as today’s weak growth figures shock investors.

The FTSE MIB index has fallen by 137 points, or 0.8%, to 18,900 points.

Italy’s new coalition government only took control of the economy in June, so they must be disappointed that growth has promptly fizzled out.

There’s even chatter that Italy could be flirting with another recession.

Italian industry contracted in the last quarter, according to stats body Istat, helping to drag growth down to zero.

Domestic demand and net exports were both flat.

Agriculture, forestry and fishing, and services all made a positive contribution (but not enough to actually grow the Italian economy).

On an annual basis, Italy’s economy only grew by 0.8% in the last year, down from 1.0%.

That’s a thoroughly underwhelming result.

Newsflash: China’s currency has dropped to its lowest level in a decade, as Beijing wrestles with its economic slowdown.

The yuan has been officially fixed at ¥6.9574 to the US dollar, its cheapest since the financial crisis of 2008.

This will make Chinese exports more competitive overseas, helping them overcome America’s new tariffs. That might fuel claim that China is devaluing its currency.

However, Beijing seems to have actually been trying to support the yuan, in the face of concerns that China’s economy is slowing.

Economist Shaun Richards points out that France’s annual growth rate has dipped, despite picking up in the last quarter.

European stock markets have opened a little higher, as investors take today’s French growth figures in their stride.

Royal Bank of Canada predict that German factories dragged eurozone growth down in the last quarter

They writes:

Our economists are looking for 0.4% growth, quarter-on-quarter, in the eurozone, in line with the ECB’s staff forecasts. Manufacturing looks set to exert a large drag on activity in Germany this quarter.

French consumers spent more on travel over the summer, helping to grow the economy.

Transport expenses “bounced back markedly” in Q3, rising by 3.7%, stats body INSEE says.

That follows a 2.9% slump in Q2, blamed on “strikes in rail transport”. Unions brought commuter services to a standstill several times this spring, in a row over plans to open the railways up to competition.

Takeover News: Asian noodle bar chain Wagamama is being bought by the company behind the Frankie & Benny’s and Chiquito brands.

The Restaurant Group (TRG) is gobbling up Wagamama for a cash payment of £357m, funded by a new £315m rights issue.

Andy McCue, CEO of TRG, says:

Wagamama is a fantastic brand, with a market leading pan-Asian proposition, which has consistently outperformed the casual dining market in recent years.

Central to this success has been a cohesive culture and clear brand values which are focused on making the right choices for customers.

It’s quite a turnaround for TRG, which suffering from falling sales last year as consumers have cut back. The deal gives Wagamama an enterprise value (including debt) of £559m.

Economist and eurozone-watcher Fred Ducrozet says today’s French GDP report looks healthy, even though growth wasn’t quite as fast as hoped:

This chart from Nadia Gharbi of Pictet Asset Management shows how domestic spending boosted the economy: