US Business

Germany’s economy unexpectedly grew in the third quarter, official data showed Friday, but slowing growth in France and Spain added to fears that high inflation and an energy crisis will tip the region into recession.

Europeans are bracing for a difficult winter as Russia crimps gas supplies in the wake of the Ukraine war, raising the spectre of energy shortages and worsening a cost-of-living squeeze for millions.

Despite the gloomy outlook, Germany surprised analysts by posting growth of 0.3 percent quarter-on-quarter, driven mainly by consumer spending.

France and Spain meanwhile reported 0.2 percent growth each from July to September, a sharp slowdown however from the 0.5 and 1.5 percent expansion they saw in the previous quarter.

“The German economy managed to hold its ground despite… the continuing Covid-19 pandemic, supply chain interruptions, rising prices and the war in Ukraine,” federal statistics agency Destatis said about the preliminary data.

Germany narrowly eked out 0.1 percent growth in the second quarter, and analyst had predicted that Europe’s biggest economy would shrink by 0.2 percent in the third quarter.

But economists warned that Friday’s data merely provided a brief respite and that a downturn was coming, as Russia’s war in Ukraine sends food and especially energy costs surging.

Consumer price growth in the 19-nation eurozone jumped to a record 9.9 percent in September, further depressing household income and raising costs for companies.

“Today’s positive growth data is a welcome surprise. However, it does not mean that the German economy will be able to prevent a recession,” said ING economist Carsten Brzeski.

“The recession is only delayed, not cancelled.”

– ‘Last hurrah’ –

Germany, whose energy-hungry industries play a vital role in its export prowess, relied heavily on Russian gas before the war and it has been hit harder than other EU nations by Moscow’s cuts.

The German government expects the economy to shrink by 0.4 percent in 2023.

Adding to the country’s woes, Destatis on Friday said Germany’s annual inflation rate had climbed again to hit 10.4 percent in October, beating September’s high of 10 percent.

The country’s largest union IG Metall called on workers in the metal and electronics industry to strike from Saturday in a push for an eight-percent wage hike as inflation erodes their salaries.

In France, the EU’s second-largest economy, strong business investment helped to keep momentum going but the post-lockdown boost in the services sector was fading, analysts said.

Anaemic French growth in the third quarter might be “the last hurrah before the recession,” said Maxime Darmet, an economist at Allianz Trade.

And with consumer prices in France soaring to 6.2 percent this month to their highest level since 1985, households “will feel severely the fall in their purchasing power,” Darmet said.

French President Emmanuel Macron recently promised to support households through the difficult times in a rare TV interview, after the country was hobbled by weeks of strikes over pay by workers at oil refineries and fuel depots.

In Spain, the slowing growth was largely down to poor performance in the real estate sector, where activity contracted by 2.5 percent, and a drop in exports and business investment.

Only a strong tourism season and robust domestic demand spared the country from a contraction, said ING economist Wouter Thierie.

Austria’s economy, meanwhile, contracted by 0.1 percent in the third quarter, according to the Austrian Institute of Economic Research (WIFO).

But with many of the country’s indicators flashing red, “we forecast a mild recession for the Spanish economy in the next two quarters,” he said.

The European Central Bank on Thursday rolled out another bumper interest rate hike to combat inflation but acknowledged that higher borrowing costs would deepen the economic pain.

The likelihood of a eurozone recession was “looming much more on the horizon,” ECB chief Christine Lagarde said.

Auto giant Volkswagen said Friday its recovery in China was accelerating, but sounded a note of caution on geopolitical risks as concerns grow over German dependence on the Asian giant.

The German group, whose brands also include Audi and Skoda, saw net profits in the July-September period slide due to the suspension of its Russian operations and costs linked to listing luxury brand Porsche.

But there was a 26 percent increase in deliveries in China, Volkswagen’s biggest market, in the same period, and a 33 percent increase in September alone.

The news is a boost for the group which, like other international companies, saw its business in China impacted by lockdowns and other restrictions as part of the country’s zero-Covid policy.

China remains a “strong market for Volkswagen… We have strong partnerships in China,” said the group’s CEO Oliver Blume, who will accompany Chancellor Olaf Scholz on a visit to the world’s number two economy next week.

German companies are however facing growing scrutiny over their reliance on authoritarian China, after many in Europe’s top economy got badly burned by an over-reliance on gas imports from Russia. 

Moscow has slashed vital energy deliveries to the continent, in suspected retaliation for the sanctions imposed over the Ukraine war, leaving consumers and businesses facing huge bills.

– Need to be ‘flexible’ –

Asked about growing tensions over China, Blume responded that the company was keeping an eye on the “geopolitical situation”. 

It was important for Volkswagen to be “flexible with our global footprint in terms of being able to react on geopolitical crises”, he added. 

Worries about China were laid bare recently when a row erupted in the ruling coalition about whether to sell a stake in a Hamburg port terminal to a Chinese company. 

Scholz ultimately defied calls from six ministries to veto the sale over security concerns, instead permitting the company to acquire a reduced stake. 

In the third quarter, Volkswagen made a net profit of 2.13 billion euros ($2.12 billion) in July to September — a fall of more than 26 percent from the same period a year earlier.

Results were “weighed down by non-recurring costs totalling around 1.6 billion euros related to revaluation effects due to the group’s suspended activities in Russia and costs associated with the Porsche IPO”, said Volkswagen in a statement.

Along with other German automakers including rivals Mercedes-Benz and BMW, Volkswagen halted exports to Russia shortly after the invasion of Ukraine and closed its local production sites.

Last month, luxury sports carmaker Porsche floated on the Frankfurt stock exchange in one of Europe’s biggest listings in years. Volkswagen is expected to use some of the cash raised in the listing in its shift towards electric vehicles.

The group confirmed its outlook for 2022 in most areas. It expects sales revenues to be eight to 13 percent higher than in the previous year.

Cash is king in Italy, and the debate over limiting payments in notes and coins is heating up again under the country’s new right-wing government.

A new bill introduced this week by the League party, a member of Prime Minister Giorgia Meloni’s coalition, would raise the cash payment ceiling for Italians to 10,000 euros from 2,000 euros today.

The plan would mean not only ditching a planned further decrease due to take effect from January, but also enacting a huge increase in the limit.

Credit card use has been steadily on the rise throughout the eurozone in recent years, but Italy has doggedly persisted in its preference for cash despite numerous incentives to encourage electronic payments.

Italians used cash for 82 percent of transactions, versus the 73 percent eurozone average, according to a 2020 study by the European Central Bank.

Defenders cite high card fees for shopkeepers and the preference among the elderly for cash.

However, critics say its use contributes to tax evasion and money laundering — two problems that have long dogged the Italian economy.

“Mafia and (tax) evaders thank you,” tweeted Andrea Orlando, labour minister under former premier Mario Draghi, about the League’s bill.

– Helps the poor –

Meloni — who has sought to reassure the EU that she will be fiscally prudent — told the Senate Wednesday she will support a higher cash ceiling.

However, reports suggest she will back a lower level than proposed by the League, perhaps around 5,000 euros.

The limit had been due to be cut to 1,000 euros from January.

She denied any link between high cash limits and the shadow economy, saying the higher ceiling “helps the poor”.

Cash is preferred by low earners in the centre and south of Italy, where unemployment is higher, and among women and the self-employed, according to a Bank of Italy analysis of European Central Bank surveys published in March.

In a May report, the ECB estimated there were 13.5 million people in the eurozone with no bank account or access to financial services, arguing that cash needed to remain accessible and accepted. 

However, an October 2021 Bank of Italy research paper found a direct correlation between the use of cash and the shadow economy, noting that restrictions on cash use “are an effective instrument to tackle tax evasion”.

– Tax evasion –

A 2016 decision to raise Italy’s ceiling from 1,000 euros to 3,000 euros to boost spending raised the share of the shadow economy by about 0.5 percentage points, the Bank of Italy report found.  

Italy’s cash ceiling has gradually been lowered over the past three decades, although it rose to a high of 12,500 euros under two governments of then-premier Silvio Berlusconi, whose Forza Italia party is also part of Meloni’s coalition.

Elsewhere in Europe, Greece has the most stringent cash limit, at 500 euros, while the ceiling rises above 10,000 euros in countries such as Malta, the Czech Republic and Croatia. 

Germany, Sweden and Ireland, among others, have no limits, but restrictions exist.

Italy’s largest business association, Confcommercio, said that as soaring inflation eats into household budgets, “it does not appear appropriate to impose new limitations on forms of payment”.

It said that lowering merchants’ credit card processing fees was a priority.

Massimo Vidiri, 51, who runs a Rome tobacco shop, said clients increasingly wanted to use credit cards, although he himself likes carrying cash.

“If something happens, like a blackout, what do I do?” he asked. “If the internet goes down throughout Italy, what do we do?”

He complained about high fees, a view shared by another shopkeeper nearby, Angelo Bruno.

Bruno, 71, denied small merchants like himself were a problem, telling AFP: “The big cases of tax evasion are the politicians, the only ones who get picked on are the little shopkeepers.”

The Bank of Italy report found that because small business owners were more susceptible to bureaucratic burdens and high taxes, they were “more prone to shifting into the shadow economy”.

Digital payments accelerated in Italy during the Covid-19 pandemic, when shops were shut and online shopping spiked.

A “cashback” scheme put in place in 2021 by then-prime minister Giuseppe Conte to encourage consumer spending and fight tax evasion through refunds on credit card purchases was considered inefficient and costly, and suspended by Draghi. 

Global stock markets slumped on Friday, with shares in tech giants tumbling on poorly-received earnings, adding to fears of a global recession according to traders. 

The week has seen forecast-missing results from some of the world’s biggest firms including Apple, Amazon, Facebook parent Meta and Google parent Alphabet.

That has caused sharp share-price losses for some of the titans, in turn sending values tumbling for tech companies worldwide.

“Tech carnage is affecting sentiment,” noted Neil Wilson, analyst at Market.com.

All eyes are meanwhile on Twitter after Elon Musk completed a mega takeover of the social media giant, with critics and fans anxious to see how the planet’s richest man would run one of the world’s leading social media platforms.

In foreign exchange Friday, the euro was back below parity against the dollar following official data showing the US economy rebounded in the third quarter.

Surprise figures showing Europe’s biggest economy Germany had also expanded in the July-September period failed to push the euro above one dollar, where it stood earlier in the week for the first time since September.

Elsewhere, the yen was down against the dollar after Japan’s Prime Minister Fumio Kishida said the country would spend $260 billion on a stimulus package to cushion the weak economy.

The yen has plunged to 32-year lows versus the dollar in recent weeks as Japan’s central bank refuses to hike interest rates despite sky-high inflation, fuelled by soaring energy prices.

ExxonMobil on Friday reported a surge in third-quarter earnings on high oil and natural gas prices.

The US oil giant became the latest petroleum heavyweight to report stunning quarterly figures, with year-on-year profits nearly tripling to $19.7 billion on revenue soaring to $112 billion.

– Key figures around 1115 GMT –

London – FTSE 100: DOWN 0.4 percent at 7,042.47 points

Frankfurt – DAX: DOWN 0.6 percent at 13,127.27

Paris – CAC 40: DOWN 0.2 percent at 6,230.98

EURO STOXX 50: DOWN 0.6 percent at 3,582.33

Tokyo – Nikkei 225: DOWN 0.9 percent at 27,105.20 (close)

Hong Kong – Hang Seng Index: DOWN 3.7 percent at 14,863.06 (close)

Shanghai – Composite: DOWN 2.3 percent at 2,915.93 (close)

New York – Dow: UP 0.6 percent at 32,033.28 (close)

Euro/dollar: DOWN at $0.9950 from $0.9965 on Thursday

Pound/dollar: DOWN at $1.1538 from $1.1567 

Dollar/yen: UP at 147.62 yen from 146.27 yen

Euro/pound: UP at 86.22 pence from 86.11 pence

West Texas Intermediate: DOWN 0.6 percent at $88.56 per barrel

Brent North Sea crude: DOWN 0.4 percent at $96.61 per barrel

ExxonMobil reported a surge in third-quarter earnings Friday, fueled by much higher oil and natural gas prices and robust profit margins for gasoline and other refined products.

The US oil giant became the latest petroleum heavyweight to report stunning third-quarter figures, with year-on-year profits nearly tripling to $19.7 billion and revenues rising 52 percent to $112.07 billion.

The results show how the surge in crude prices in the aftermath of Russia’s invasion of Ukraine has boosted oil company profits.

Also crucial, ExxonMobil cited a 22 percent jump from natural gas sales in the period due to “European supply concerns and efforts to build inventory ahead of winter.”

In its refining business, ExxonMobil turned in its loftiest ever refinery production level in North America.

Refinery margins were significantly higher than in the year-ago period, but retreated from the second quarter due to loftier output and “flat US gasoline demand,” the company said.

Gasoline prices have retreated from their peak levels earlier this year, but remain high by historical standards and have been a focal point of US midterm elections. 

Prices at the pump stand at a national average of $3.76 per gallon, up about 11 percent from the year-ago level. Prices topped $5 in June. 

Shares of ExxonMobil, which have risen for much of 2022, climbed 2.2 percent in pre-market trading to $109.95.

Germany’s economy unexpectedly grew in the third quarter, official data showed Friday, but slowing growth in France and Spain added to fears that high inflation and an energy crisis will tip the region into recession.

Europeans are bracing for a difficult winter as Russia crimps gas supplies in the wake of the Ukraine war, sending heating bills soaring and worsening a cost-of-living squeeze for millions.

Despite the gloomy outlook, Germany surprised analysts by posting growth of 0.3 percent quarter-on-quarter, driven mainly by consumer spending.

France and Spain meanwhile reported 0.2 percent growth each from July to September, a sharp slowdown however from the 0.5 and 1.5 percent expansion they saw in the previous quarter.

“The German economy managed to hold its ground despite… the continuing Covid-19 pandemic, supply chain interruptions, rising prices and the war in Ukraine,” federal statistics agency Destatis said about the preliminary data.

Germany narrowly eked out 0.1 percent growth in the second quarter, surpassing analyst predictions that Europe’s biggest economy would shrink by 0.2 percent in the third quarter.

But economists warned that Friday’s data merely provided a brief respite and that a downturn was coming, as Russia’s war in Ukraine sends food and especially energy costs surging.

The fallout from the war has fuelled eurozone inflation, running at a record 9.9 percent in September, depressing household income and raising costs for companies.

“Today’s positive growth data is a welcome surprise. However, it does not mean that the German economy will be able to prevent a recession,” said ING economist Carsten Brzeski.

“The recession is only delayed, not cancelled.”

– ‘Last hurrah’ –

Germany, whose energy-hungry industries are key to its success as an export nation, was heavily reliant on Russian gas before the war and it has been hit harder than other EU nations by Moscow’s gas cut.

The German government expects the economy to shrink by 0.4 percent in 2023.

In France, the EU’s second-largest economy, strong business investment helped to keep momentum going but the post-lockdown boost in the services sector was fading, analysts said.

Anaemic French growth in the third quarter might be “the last hurrah before the recession,” said Maxime Darmet, an economist at Allianz Trade.

And with consumer prices in France soaring to their highest level since 1985, households “will feel severely the fall in their purchasing power,” Darmet said.

French President Emmanuel Macron recently promised to support households through the difficult times in a rare TV interview, after the country was hobbled by weeks of strikes over pay by workers at oil refineries and fuel depots.

In Spain, the slowing growth was largely down to poor performance in the real estate sector, where activity contracted by 2.5 percent, and a drop in exports and business investment.

Only a strong tourism season and robust domestic demand spared the country from a contraction, said ING economist Wouter Thierie.

But with many of the country’s indicators flashing red, “we forecast a mild recession for the Spanish economy in the next two quarters,” he said.

The European Central Bank on Thursday rolled out another bumper interest rate hike to combat inflation but acknowledged that higher borrowing costs would deepen the economic pain.

The likelihood of a eurozone recession was “looming much more on the horizon,” ECB chief Christine Lagarde said.