US Business

The EU warned Friday the eurozone was set to fall into recession this winter as Brussels hiked inflation forecasts for 2022 and 2023 on the back of high energy prices.

Europe is reeling from the economic shockwaves unleashed by Russia’s war on Ukraine, which have fuelled a spike in energy costs and hit the wallets of consumers around the continent.

The EU’s executive arm said increased uncertainty and prices “are expected to tip” the eurozone and most of the bloc’s member states into recession in the last quarter of this year.

“The contraction of economic activity is set to continue in the first quarter of 2023. Growth is expected to return to Europe in spring,” the European Commission said.

“With powerful headwinds still holding back demand, economic activity is set to be subdued, with GDP growth reaching 0.3 percent in 2023.”

Brussels predicted that the EU’s biggest economy Germany would fare the worst of the member states with a contraction of 0.6 percent next year. 

Overall eurozone GDP growth for 2022 was put at 3.2 percent after early strong months of the year.

But the EU’s economy commissioner Paolo Gentiloni said “the impact of soaring energy prices, rampant inflation, are now taking their toll.”

“We have some difficult months ahead of us,” Gentiloni said. 

He cautioned that “the potential for further economic disruptions due to Russia’s war is far from exhausted.”

– Inflation peak in view? –

The downbeat forecast came as the commission sharply raised its predictions for inflation in this and next year.

It said eurozone inflation was expected to stand at 8.5 percent for 2022, a point higher than earlier forecast, and 6.1 percent in 2023, over two points higher than predicted previously. 

“Inflation has continued to rise faster than expected, but we believe that the peak is near. Most likely at the end of this year,” Gentiloni said.

“We are projecting a very gradual reduction of inflation because inflation next year is still projected to be quite high.”

He warned however that inflation could end up two points higher in 2023 if the EU “fails to prepare” adequately in advance for next winter by filling up its gas stores.

The baseline prediction put inflation in 2024 at 2.6 percent, still higher than the European Central Bank’s (ECB) target of two percent.

The ECB in October forecast a recession was on the way, as it announced another jumbo interest rate hike to try to curb inflation driven up by the fallout from Russia’s war on Ukraine.  

Bank president Christine Lagarde said last week that a “mild” eurozone recession was looming but would not be enough to bring down record-high inflation.

Gentiloni said that one “bright spot” remained the resilience of the EU’s labour market and that there was only expected to be a “moderate” increase in unemployment before a decline in 2024. 

The aggregate government budget deficit is expected to rise again from 3.4 percent in 2022 to 3.6 percent in 2023 as the EU debates reforming its fiscal rules.

United Nations chiefs were holding talks with Russian officials Friday on the Black Sea agreements on exporting grain and fertilisers, eight days before one of the deals is set to expire.

UN humanitarian chief Martin Griffiths and Rebeca Grynspan, head of UN trade and development agency UNCTAD, were meeting a high-level delegation from Moscow, led by Russian deputy foreign minister Sergei Vershinin.

UN spokeswoman Alessandra Vellucci confirmed the talks were under way at the UN Palais des Nations headquarters in Geneva.

“They will continue ongoing consultations in support of the efforts by (UN) Secretary-General Antonio Guterres on the full implementation of the two agreements signed on July 22 in Istanbul,” she said.

“It is hoped that the discussions will advance progress made in facilitating the unimpeded export of food and fertilisers originating from the Russian Federation to the global markets.”

– 10.2 million tonnes exported –

Two agreements brokered by the UN and Turkey were signed on July 22 — to allow the export of Ukrainian grain blocked by Russia’s war in the country, and the export of Russian food and fertilisers despite Western sanctions imposed on Moscow following its invasion of Ukraine.

The 120-day Black Sea Grain Initiative runs out on November 19, and the United Nations is seeking to renew the agreements for one year.

Moscow, however, has not yet said whether it will agree to that.

It has complained that the second agreement exempting its fertilisers from sanctions, which is due to run for three years, is not being respected.

Ukraine is one of the world’s top grain producers and the Russian invasion had blocked 20 million tonnes of grain in its ports until the safe passage deal was agreed.

Until Thursday, 10.2 million tonnes of grains and other foodstuffs had been exported from Ukraine under the deal, relieving some fears over a deepening global food security crisis.

– ‘Very serious’ implications –

The UN’s Food and Agriculture Organization said the implications could be very concerning for global food security if the deal is not renewed.

“We see it as an important initiative that has improved food availability,” said Boubaker Ben-Belhassen, director of the FAO’s markets and trade division.

“However, should we be in a scenario that nobody wants to see, that there is a termination of the deal, I think the situation could be really difficult and the implications could be very serious,” he told reporters via video-link from Rome, where the FAO is based.

He pointed in particular to global food security, prices, availability and food staples.

Ben-Belhassen said that in the short term prices would increase, especially for wheat, maize and sunflower seed oil, while availability of grains on the global market would go down.

There could be a heavy impact on countries that depend on Black Sea imports, notably in the Middle East and North Africa.

Ben-Belhassen also warned of the impact within Ukraine if the deals are not renewed.

The grain agreement has until now allowed Ukraine to release stocks from the last winter harvest, easing storage capacity pressure, he said.

It has also given farmers in the war-torn country a revenue stream, allowing them to make decisions on future investments and planting the next crop, he added.

European stock markets on Friday failed to match soaring gains overnight in Asia and on Wall Street, as recession prospects offset a boost from slower US inflation.

London’s benchmark FTSE 100 index fell in midday deals after official data indicated that the UK economy was likely at the start of a prolonged recession.

“The FTSE’s struggles suggest UK investors are more worried about deteriorating domestic, eurozone and global economies than are hopeful about the US and other central banks easing rate hikes,” noted Fawad Razaqzada, market analyst at City Index trading group.

Frankfurt and Paris managed to advance around half-a-percent but gains were capped as the EU warned the eurozone was set to fall into recession this winter.

Brussels also hiked regional inflation forecasts for 2022 and 2023 on the back of high energy prices.

Asian equities closed sharply higher after a bumper session on Wall Street Thursday, as lower US inflation dimmed expectations of more aggressive interest-rate hikes from the Federal Reserve.

Hong Kong’s main equities index rocketed more than 7.7 percent, while Tokyo won three percent.

Shanghai won 1.7 percent and oil prices rose strongly as China relaxed some hardline Covid-19 restrictions.

In the US, annual inflation came in at a lower-than-expected 7.7 percent in October, down from 8.2 percent in September.

The latest inflation data should be welcome news to Fed policymakers because prices are “finally showing some response” to the steep rate hikes, said Rubeela Farooqi of High Frequency Economics.

The dollar slumped against rival currencies following the data release as traders bet that upcoming US interest rate hikes will be smaller than in recent months.

Daniel Berkowitz, senior investment officer for Prudent Management Associates, struck a note of caution regarding the slower inflation.

“While it always feels good to see markets rally, we think this… is bordering on silly,” he said.

“The market is reacting as if this is the continuance of a multiple-month, downward trend in inflation, and it is not.”

In the UK, inflation is seen rising further. Currently at 10.1 percent, the Bank of England is forecasting it will hit around 11 percent this year before starting to cool.

Traders pounced on the slower US number, however.

Wall Street’s Dow shares index was up 3.7 percent at Thursday’s close and the tech-heavy Nasdaq index soared 7.4 percent. 

– Key figures around 1200 GMT –

London – FTSE 100: DOWN 0.4 percent at 7,346.14 points 

Frankfurt – DAX: UP 0.5 percent at 14,218.05

Paris – CAC 40: UP 0.3 percent at 6,578.94 

EURO STOXX 50: UP 0.6 percent at 3,871.35

Tokyo – Nikkei 225: UP 3.0 percent at 28,263.57 (close)

Hong Kong – Hang Seng Index: UP 7.7 percent at 17,325.66 (close)

Shanghai – Composite: UP 1.7 percent at 3,087.29 (close)

New York – Dow: UP 3.7 percent at 33,715.37 points (close)

Pound/dollar: UP at $1.1757 from $1.1642 on Thursday

Euro/dollar: UP at $1.0291 from $1.0131

Dollar/yen: DOWN at 139.37 yen from 143.15 yen

Euro/pound: UP at 87.49 pence from 87.20 pence

Brent North Sea crude: UP 3.1 percent at $96.59 per barrel

West Texas Intermediate: UP 3.4 percent at $89.44 per barrel

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The EU warned Friday the eurozone was set to fall into recession this winter as Brussels hiked inflation forecasts for 2022 and 2023 on the back of high energy prices.

Europe is reeling from the economic shockwaves unleashed by Russia’s war on Ukraine, which have fuelled a spike in energy costs and hit the wallets of consumers around the continent.

The EU’s executive arm said increased uncertainty and prices “are expected to tip” the eurozone and most of the bloc’s member states into recession in the last quarter of this year.

“The contraction of economic activity is set to continue in the first quarter of 2023. Growth is expected to return to Europe in spring,” the European Commission said.

“With powerful headwinds still holding back demand, economic activity is set to be subdued, with GDP growth reaching 0.3 percent in 2023.”

Brussels predicted that the EU’s biggest economy Germany would fare the worst of the member states with a contraction of 0.6 percent next year. 

Overall eurozone GDP growth for 2022 was put at 3.2 percent after early strong months of the year. 

But the EU’s economy commissioner Paolo Gentiloni said “the impact of soaring energy prices, rampant inflation, are now taking their toll.”

“We have some difficult months ahead of us,” Gentiloni said. 

He cautioned that “the potential for further economic disruptions due to Russia’s war is far from exhausted.”

– Inflation peak in view? –

The downbeat forecast came as the commission sharply raised its predictions for inflation in this and next year.

It said eurozone inflation was expected to stand at 8.5 percent for 2022, a point higher than earlier forecast, and 6.1 percent in 2023, over two points higher than predicted previously. 

“Inflation has continued to rise faster than expected, but we believe that the peak is near. Most likely at the end of this year,” Gentiloni said.

“We are projecting a very gradual reduction of inflation because inflation next year is still projected to be quite high.”

He warned however that inflation could end up two points higher in 2023 if the EU “fails to prepare” adequately in advance for next winter by filling up its gas stores.

The baseline prediction put inflation in 2024 at 2.6 percent, still higher than the European Central Bank’s (ECB) target of two percent.

The ECB in October forecast a recession was on the way, as it announced another jumbo interest rate hike to try to curb inflation driven up by the fallout from Russia’s war on Ukraine.  

Bank president Christine Lagarde said last week that a “mild” eurozone recession was looming but would not be enough to bring down record-high inflation.

Gentiloni said that one “bright spot” remained the resilience of the EU’s labour market and that there was only expected to be a “moderate” increase in unemployment before a decline in 2024. 

The aggregate government budget deficit is expected to rise again from 3.4 percent in 2022 to 3.6 percent in 2023 as the EU debates reforming its fiscal rules.

Chinese shoppers flocked to online commerce giants on Friday, snapping up hundreds of billions of yuan in bargains, though an economic malaise took some shine off the annual Singles Day fever.

Sales revenues across platforms operated by tech giants such as Alibaba and JD.com hit around 262 billion yuan ($36.7 billion) between 8:00 pm on Thursday and 2:00 pm (0600 GMT) on Friday, according to an estimate by research firm Syntun.

Analysts said demand was more muted than in previous years, while consumers told AFP that a lack of spending power and an economy groaning under a hardline zero-Covid policy had dampened desire to spend.

Nonetheless, the combined gross value of products sold since late October “may surpass a trillion yuan” for the first time, Xiaofeng Wang, principal analyst at research firm Forrester, said earlier in a note.

“This year, merchants and platforms are focusing less on sales and more on profit and conversion rates,” said tech analyst Liu Xingliang.

“After so many years, it’s natural for (Singles Day) to become less popular,” he said, adding that a bright spot appeared to be greater interest in livestreamed sales.

“Chinese consumers have become more rational and no longer hoard large amounts of goods like they did in years gone by”, economist Song Qinghui told AFP.

“They buy according to their needs, perhaps because consumption is becoming more transparent, and also because of the impact of the Covid-19 pandemic,” he said.

Conceived by Alibaba, the event’s title riffs on a tongue-in-cheek celebration of singlehood inspired by the four ones — “11/11” — that denote its date of November 11.

It has grown to encompass much of China’s retail sector, with merchants offering varying levels of discounts starting in late October.

Once a festival of frenzied consumption led by Alibaba’s effervescent founder Jack Ma, Singles Day has been more muted in recent years as Beijing cracks down on online platforms and state media coverage has waned.

Beijing resident Liu Yingxue said the Single’s Day atmosphere was “not as enthusiastic” as in previous years.

The platforms “used to have more ads and promotions… and don’t give so many discounts these days,” she told AFP. 

– Economic strain –

The mood has been dampened further this year as Beijing persists with a zero-Covid strategy that has hammered business confidence and chipped away at consumer demand.

The event, conceived in 2009, has previously lured throngs of Chinese influencers alongside Western celebrities including Kim Kardashian and Taylor Swift, drawing heavy coverage in both domestic and international media.

This time around, a series of scandals and a campaign against tax evasion have lowered expectations of celebrity endorsements, with influential Chinese live-streamer Viya disappearing from social media late last year in the wake of a tax probe.

Alibaba said last week the event could “make a big difference” for retailers struggling with supply-chain disruptions and inflation this year, including a slew of foreign brands.

Businesses and consumers alike have been laid low by China’s Covid prevention policies, which see officials wield snap lockdowns, mass testing and lengthy quarantines in response to a handful of cases.

Beijing resident Li Xiaofeng said the “state of the whole economy” was likely putting platforms and merchants under more pressure, “so they are offering fewer discounts”.

Another denizen of the capital, Lin Xiangru, blamed Covid — adding that “people have less guaranteed income than before, so they don’t want to spend money on desired products.”

China is the last major economy wedded to a zero-Covid strategy, with officials insisting they will stick “unswervingly” to the policy.

But Beijing announced the relaxation of some of its harsher curbs on Friday, cutting quarantine for overseas arrivals and scrapping Covid-related flight bans.

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Britain’s economy shrank in the third quarter as inflation soars, official data showed Friday, likely confirming it is already in a recession, dealing a fresh blow to new Prime Minister Rishi Sunak.

The Bank of England has said the UK economy would also contract in the current final quarter, meaning the economy was in a recession that it warned could last until mid-2024.

Friday’s data comes ahead of the Conservative government’s crucial budget announcement next week aimed at bringing much-needed economic and political stability to Britain.

Sunak, in charge for less than three weeks, has already faced questions over his political judgement after expressing regret on Wednesday for appointing a disgraced ally.

Britain’s Office for National Statistics on Friday said the nation’s economy contracted 0.2 percent in the July-September period — in part hit by businesses closing for the funeral of Queen Elizabeth II.

Output had grown modestly in the second quarter, the statistics office confirmed.

– ‘Tough road ahead’ –

Following Friday’s data and ahead of his budget, finance minister Jeremy Hunt said he was “under no illusion that there is a tough road ahead — one which will require extremely difficult decisions to restore confidence and economic stability”.

Preparing the country for tax hikes and spending cuts in Thursday’s fiscal announcement, he added that the Tory government needed to “balance the books and get debt falling”. 

“There is no other way,” he said, if Britain was to “achieve long-term sustainable growth”.

Finance spokeswoman for the main opposition Labour party described the third-quarter GDP numbers as “extremely worrying”.

“We’re already set to be near the bottom of global league tables on growth, but all the Tories offer yet again is austerity,” Rachel Reeves added.

As well as a recession, Britain is facing a cost-of-living crisis with UK inflation at a four-decade high above 10 percent.

The country is on course for a winter of mass strikes, including by nurses, as workers in the public and private sectors demand pay increases to match inflation and shortfalls to wage rises seen in recent years.

“The sharp rise in energy and other consumer prices has contributed to a squeeze on household finances, which is expected to have pushed the UK economy into a recession from the third quarter of this year,” Yael Selfin, chief economist at KPMG UK, said following Friday’s data.

The technical definition of recession is two quarters of contraction in a row.

GDP meanwhile contracted 0.6 percent in September, with output worsened by a public holiday for the queen’s funeral.

The month also saw the start of Liz Truss’s incredibly short spell as prime minister.

Hitting out over her time in office, former finance minister Kwasi Kwarteng on Thursday said he had warned the former prime minister to “slow down” on tax cuts that triggered economic turmoil and caused her downfall.

Kwarteng, appointed chancellor of the exchequer after Truss succeeded Boris Johnson, made a series of unfunded tax cut announcements in late September.

His budget panicked the markets, sent the pound crashing to an all-time low against the dollar and triggered emergency buying of UK government bonds by the Bank of England.

Truss was forced to resign in mid-October after less than 50 days in office — becoming the shortest-serving prime minister in Britain’s history. 

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Japan’s SoftBank Group on Friday posted a net profit in the second quarter, partly thanks to gains from the recent reduction of its stake in Chinese e-commerce giant Alibaba.

But falling share prices for many of its tech start-up ventures continue to hurt the company’s balance sheet.

The investment behemoth has made huge bets to find and grow new tech companies around the world — making its earnings vulnerable to fickle market forces.

SoftBank’s results have lurched between dizzying highs and lows in recent years, while China’s crackdown on its tech sector has also taken a toll on the company.

In August, the group announced it would sell down some of its shares in Alibaba, reducing its stake in the Chinese tech giant to around 15 percent from 24 percent.

This helped boost SoftBank’s earnings in the second quarter for a net profit of 3.03 trillion yen ($21.4 billion).

Over the first half of this financial year, however, it suffered a net loss of 129 billion yen, brought down by its record net loss in the first quarter.

SoftBank’s performance in the April-to-June quarter was dragged down by a global tech share rout, triggered by interest-rate hikes by the US Federal Reserve and other central banks to tackle inflation.

The bleak investment climate caused losses in SoftBank’s investments in ventures from US food delivery app DoorDash to South Korean e-commerce brand Coupang.

And the trend continued in the second quarter, which saw investment losses on its two main tech-focused funds of 1.4 trillion yen (nearly $10 billion).

– ‘Very pessimistic’ –

CEO Masayoshi Son said in August that he expected the “winter” for tech start-ups will continue, pledging to cut personnel at the group’s tech-focused Vision Fund.

In September, SoftBank confirmed to AFP that 30 percent of its investment advisors would lose their jobs.

Son is known for his unconventional and often sanguine presentations at earnings announcements, where he highlights the thinking behind sometimes controversial decisions, such as investing generously in risky ventures like the troubled WeWork.

In a change of tack for the company, however, Son on Friday let Chief Financial Officer Yoshimitsu Goto do most of the talking at a post-results press conference.

Goto said the company did not know when the difficult period for technology-related shares would end.

“Looking at just the market over the past month, there has been a slightly more positive change,” he said.

“But basically, we are very pessimistic.”

“We could make a lot of money if we knew when (share prices) will recover, but honestly, we don’t know,” Goto said, adding that the future for the company was difficult to predict given the current geopolitical situation.

Commenting on the recent drama surrounding crisis-hit cryptocurrency platform FTX.com, Goto reassured listeners that SoftBank’s “investment in these virtual currencies and crypto assets is extremely small”. 

Regarding plans to take its microchip powerhouse Arm Holdings public, the company said that an IPO would be tricky within the current financial year, but that it hopes to move forward with the plan by the end of the 2023 calendar year.