European Economy Shrinks by Historic Margin: Live Business Updates

Pubblicato il 31 Luglio, 2020 alle 18:25 da in Europa e economia, European Banking News, International Banking News

The European economy tumbled into its worst recession on record in the second quarter, as quarantines in countries across the continent brought business, trade and consumer spending to a grinding halt.

From April to June, gross domestic product fell from the first quarter by 11.9 percent in the 27 member states of the European Union, and by 12.1 percent in countries that use the euro currency, according to figures released on Friday by Eurostat, the bloc’s statistics agency.

On an annualized basis, European Union economies shrank by 14.4 percent, and eurozone economies by 15 percent, the sharpest contractions since statistics started being kept in 1995.

But there were signs that the worst may have passed since then, and that a tentative recovery was gaining some traction as governments unleashed enormous stimulus spending. Lengthy lockdowns, while painful for business and industry, have helped curb a widespread resurgence of the pandemic in most countries, easing reopenings.

The data was especially grim for nations on Europe’s southern rim, which were among the worst affected by the virus and which faced longer quarantine periods than northern European countries.

In Spain, which has had one of Europe’s highest death tolls, the economy shrank by a staggering 22.1 percent from a year ago and by 18.5 percent from the first quarter. France, the eurozone’s second-largest economy, shrank by 19 percent from a year ago and by 13.8 percent from the first quarter; and Italy, the third-largest economy in the zone, contracted by 17.3 percent from a year ago and by 12.4 percent from the first quarter. France is officially in recession, with three straight quarters of contraction.

On Thursday, the authorities reported that the German economy, Europe’s largest, shrank by 11.7 percent from the same period last year and by 10.1 percent from the previous quarter.

European Union leaders last week agreed to a landmark stimulus of 750 billion euros, or about $884 billion, to rescue their economies and to anchor a mild turnaround that had started to take hold after lockdowns began to be lifted.

But risks abound as surges in new cases are reported, increasing the possibility of more quarantines.

“The hard part of this recovery is set to start about now,” Bert Colijn, senior economist for the eurozone at ING Bank, said in a note to clients.

European countries have, for the most part, contained the spread of coronavirus. But outbreak, which was early and widespread, has left a deep scar on the region’s economy: A 12 percent contraction in the second quarter of the year compared with the first quarter. Different government interventions and infection rates means the impact has been uneven. Here are snapshots from the region’s largest economies in the three months that ended in June.

Though France’s 13.8 percent decline is stark, a mild rebound in consumer spending and business activity after quarantines were lifted has helped the country avoid a far sharper decline. In fact, the nation’s central bank recently revised its economic forecasts, expecting slightly less damage in the next few years.

The government’s largess has been key: It spent over 100 billion euros ($118 billion) to pay businesses not to lay off workers, it delayed deadlines for business taxes and loan payments, and deployed over 300 billion euros in state-guaranteed loans to struggling companies.

The 10.1 percent drop in Germany’s G.D.P., the largest since the country began keeping quarterly records, might already be painting a darker picture of the economy than is warranted. Separate data released Thursday showed the labor market stabilized in July and surveys of business activity indicate a quick rebound.

But the continuation of this recovery is at risk. Germany was in a better position than other European Union countries because the government was effective in containing the spread of the coronavirus. However, there is now an increase in new infections as Germans return from holidays abroad, stoking fear of a second wave.

The devastating economic impact of Italy’s outbreak and lockdown, the first in Europe, was a 12.4 percent drop in G.D.P. While the central bank estimates that two government relief packages mitigated the contraction, a slow return in tourism, consumer spending, and business investment is dragging the recovery down.

“At least for Italy, the possibility of a V-shaped recovery is not what we have in front of us,” Bank of Italy’s governor, Daniele Franco, said. One slice of the economy is experiencing a stronger rebound: industrial production. Since the first state of emergency ended in early May, half of the Italian companies that shut have managed to reopen, the cental bank said.

Spain’s recession is the deepest of all the European countries that have reported second-quarter G.D.P. so far. The economy contracted 18.5 percent compared to the first three months of the year, and the outlook for the rest of the year is grim. Spain officially ended its Covid-19 state of emergency on June 21, but it has since been struggling with an increase in the number of new cases and over 300 local outbreaks, particularly severe in the northeast.

Tourism is a substantial component of the Spanish economy but hopes of a tourism-led economic recovery this summer have been undermined by quarantine restrictions placed on the nation and its islands by Britain and other countries.

Exxon Mobil announced a record-breaking quarterly loss of $1.1 billion, blaming the coronavirus pandemic for lowering oil and gas prices and sales volumes.

The results from the largest American oil producer were further evidence of the deepest downturn for the industry in the modern era. Oil prices have recovered in recent weeks to around $40 a barrel, but that is still roughly a third below the oil price of the beginning of the year.

Exxon’s oil production was down 3 percent and natural gas output was down 12 percent, compared to the quarter a year ago, a reflection of the crippling of global demand for energy due to a worldwide recession.

Darren W. Woods, Exxon’s chairman and chief executive, attempted to put the best face on the results.

“The global pandemic and oversupply conditions significantly impacted our second quarter financial results,” he said. “We responded decisively by reducing near-term spending and continuing work to improve efficiency. The progress we’ve made to date gives us confidence that we will meet or exceed our cost-reduction targets.”

The $1.1 billion loss compares to a profit of $3.1 billion a year ago. At the same time the company’s capital and exploration expenditures were down to $5.3 billion from $8.1 billion in the quarter last year.

European stocks were rising on Friday, as gnawing concerns about the economic toll of the pandemic were outweighed by the huge jumps in profit reported by American tech companies late Thursday.

All major European indexes were higher on Friday, though most by less than 1 percent. Asian markets ended the day mixed. On Wall Street, futures were pointing to a modest upswing when trading starts.

In other markets, the 10-year U.S. Treasuries were slipping, oil futures were recovering some of the losses from earlier in the week, and gold was climbing.

The blockbuster earnings reported on Thursday by Amazon, Apple, Facebook and Google seemed to briefly put aside the uncertainty and pessimism surrounding the economic impact of the pandemic, but also perhaps underscored the concerns of lawmakers, expressed on Wednesday, that American’s tech giants have gotten too big.

But the virus continues spreading, and its damage is mounting. On Thursday, the United States reported that its economy fell 9.5 percent in the second quarter, compared with the previous quarter, the most on record. On Friday, the authorities reported that the eurozone contracted 12.1 percent in the second quarter. Both the United States and Europe are in deep recessions caused by shutdowns in economic activity to curb the spread of the disease.

But Europe has had more success controlling the virus than the United States, and that has helped prompt a rise in the value of the euro currency against the dollar. More advisers are encouraging investments in European shares, pointing also to the European Union’s progress in coming to an agreement to raise money collectively and to give grants to the countries most deeply affected by the pandemic.

A day after lawmakers grilled the chief executives of the biggest tech companies about their size and power, Alphabet, Amazon, Apple and Facebook reported surprisingly healthy quarterly financial results, defying one of the worst economic downturns on record.

Even though the companies felt some sting from the spending slowdown, they demonstrated, as critics have argued, that they are operating on a different playing field from the rest of the economy.

  • Amazon’s sales were up 40 percent from a year ago and its profit doubled.
  • Facebook’s profit jumped 98 percent.
  • Even though the pandemic shuttered many of its stores, Apple increased sales of all its products in every part of the world and posted $11.25 billion in profit.
  • Advertising revenue dropped for Alphabet, the laggard of the bunch, but it still did better than Wall Street had expected.

Combined, the companies reported $28.6 billion in quarterly net profit, underscoring how regulatory scrutiny remains more background noise and a distraction for them rather than an imminent threat to their businesses.

“The strong continue to get stronger,” said Dan Ives, managing director of equity research at Wedbush Securities. “As many companies are falling by the wayside, the tech stalwarts continue to gain muscle and power in this environment.”

With Zoom call fatigue setting in and boozy lunches out of the question during the coronavirus pandemic, housebound executives are finding new ways to meet and bond in video games. The goal is to break up a day that is crammed with get-togethers that generally look, sound and feel identical.

And for people like Lewis Smithingham, an advertising executive in Brooklyn, an outing in virtual space is a chance to form memories with people he has never met, which is a crucial part of developing relationships, business and otherwise.

“It’s my golf,” he said. Unlike golf, video games come with social distancing built in. It is back slapping without the slapping or the back, ideal during a pandemic.

Nobody knows how many executives are meeting in video games, including game publishers, but examples are popping up on Twitter and other social media platforms.

The idea of holding business meetings in a virtual world enjoyed a certain vogue about a decade ago. More than 1,400 organizations had a presence on Second Life, an online realm with everything an avatar would need, including auditoriums and beer.

For Mr. Smithingham, different games offer advantages for different clients. Gunplay and mayhem is not always the right fit. He is a fan of Animal Crossing: New Horizons, a new version of a long-popular Nintendo game, which was released in March.

“My production value is now considerably better in Animal Crossing than it is on Zoom,” he said.

Europe has a bad rep with investors. For years, asset managers and bank strategists have characterized the region by its anemic growth rate and shaky political union, and steered investors away.

Now, a crisis has turned into an unlikely investment opportunity as the region appears to have handled the pandemic better than some other parts of the world. In the past few months, European assets have staged a comeback, writes Eshe Nelson, who gives two reasons for the turnaround:

  • The most important reason, analysts say, is that Europe is recording far fewer new cases of coronavirus. There are fewer than 10,000 new cases on the continent, compared with about 65,000 new cases each day in the United States.
  • Another reason is politics. When European leaders reached an agreement last week on a 750 billion euro ($888 billion) recovery fund, it wasn’t the size of the deal that impressed investors, but the fact that it happened after four long nights of negotiations.

The euro has gained more than 5 percent against the dollar so far this year, according to FactSet data. Since late May, Europe’s stock market has recorded stronger gains than the S&P 500 index, after taking the strength of the euro into account.

Investors are starting to take advantage of the relative cheapness of European equities, but a sustained recovery in either stock market will depend on consumer and business confidence returning, which would in turn stir economic activity.

Fonte : www.nytimes.com

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