Eurozone falls into recession as inflation bites
The eurozone has fallen into recession, new data shows, after first quarter growth was revised down slightly.
GDP across the euro area shrank by 0.1% in the first quarter of this year.
It follows a 0.1% contraction in the fourth quarter of last year, meaning the eurozone has shrunk for two quarters in a row – the standard definition of a recession.
Revised data from Germany – Europe’s largest economy – was a significant factor in the bloc’s slump. Last month, Germany said it had fallen into recession at the start of the year after its economy contracted by 0.3%.
Riccardo Fabiani, an economist at Oxford Economics, said he expected only “soft growth” in the eurozone the coming months, given that interest rates are still rising and “inflationary pressures are still present”.
European economies have been hit by surging energy prices sparked by Russia’s war on Ukraine, and the European Central Bank has responded by raising interest rates by 3.75 percentage points, in a bid to tackle soaring prices.
Ireland’s economy shrank by 4.6% in the first three months of this compared with the previous three months. Compared with the same period last year, its economy contracted by 0.3%.
Despite the downturn, the CAC 40 in Paris ended the session 0.3% higher, and the DAX 40 in Frankfurt added 0.2%.
The FTSE 100 closed 24.6 points lower at 7,599.74.
Rate rises surprise
Canada’s central bank, which had been expected to leave the overnight rate unchanged for the third meeting in-a-row, lifted the benchmark rate by 25 basis points to 4.75% from 4.50%. However, it gave no indication of more hikes to come.
“Canada and Australia don’t often have a central role in moving the markets but the decision by both countries’ central banks to resume rate hikes this week has reverberated through the financial system and helped stoke fears about sticky inflation,” says AJ Bell investment director Russ Mould.
“Much of the narrative sustaining the uneven if material rally in stocks this year has been that the battle with inflation is nearly won by the central banks.
“If the Federal Reserve follows the lead of its Australian and Canadian counterparts then this could be badly undermined and the next Fed decision is now just a week away.”
Wealth manager M&G has reported progress towards delivering its targets, although first quarter performance was flat.
Andrea Rossi, the FTSE 100-listed firm’s group chief executive, said: “At full-year results we identified three priorities for the group: maintain financial strength through capital discipline, simplify the business, and deliver profitable growth focusing on Asset Management and Wealth.
The company announced that Clare Bousfield, retail and savings CEO, will leave in the autumn.
FirstGroup shares soared 14% after it trebled its total dividend after better than expected results that reflected a clear margin recovery in bus and surprising strength in rail, said analysts at Liberum.
The company proposed an additional share buyback programme, helped by higher passenger levels in its buses on the back of a UK government scheme to cap fares.
Passenger numbers at Wizz Air were up by almost 90% and revenues by 134%, although the operating loss nudged higher with fuel costs being a significant constraint.
Management is focused on a return to net profit in FY24, but is confident that this can be achieved through strategic improvements including a comprehensive fuel hedging programme.
Mitie Group said annual revenue hit a record high and contract renewal rates stand at 90%. Operating profits were down a couple of percent from last year’s level but still came in ahead of the top end of expectations.
A final dividend of 2.2p per share is being proposed, up from the 1.4p paid a year ago.
Housebuilder Crest Nicholson said revenues for the year to the end of April have fallen by more than 20% as a result of economic uncertainty, though there has been a marked increase in affordable housing completions.
However, economic headwinds saw pre-tax profit falling from £52m to £21m. The interim dividend is being maintained at 5.5p and the board expects full year profits remain in line with forecasts.