Economy

Grim Euro-Area Private Sector Suggests Quarterly Contraction

Published

12 months ago

September 22, 2023

(Bloomberg) — Private-sector activity in the euro area has continued to shrink in September, suggesting the economy contracted in the current quarter.

An index based on surveys of purchasing managers by S&P Global showed a fourth consecutive month of falling output, hitting 47.1. While that’s a slight improvement on August, the reading is clearly below the 50 level that indicates contraction. Economists had predicted a drop to 46.5.

“We expect the euro zone to enter a contraction in the third quarter,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank. “Our nowcast, which incorporates the PMI indices, points to a drop of 0.4% compared to the second quarter.”

Despite dodging a recession in the wake of Russia’s invasion of Ukraine, the euro region is struggling under the weight of higher energy prices, a surge in borrowing costs and waning demand in export markets like China. While there’s agreement that the currency bloc is going through a rough patch, the European Central Bank’s latest forecasts still see the third quarter as a stagnation — not a contraction — and the economist consensus is for 0.1% growth.

Speaking on Friday, ECB Chief Economist Philip Lane said that “the overall environment remains not fragile.”

“Because of the pandemic, household’s balance sheets look in better shape than normal, same for corporates — so, that toxic mix you need in order to trigger a deep recession is not present,” he told Yahoo Finance in an interview. “We do expect to see a pickup next year and the year after which will bring the European economy to grow.”

The PMI numbers for September showed negative readings for both manufacturing — which has been below 50 for 15 months — and services, which in the first half of the year compensated for the weakness in factories.

The region’s two biggest economies were the key drivers of the downturn in activity, according to S&P Global. While the slump eased in Germany, it deepened in France. Economists had expected momentum in both countries to remain broadly stable.

The euro initially fell as much as 0.4% to $1.0615, the lowest since March 17, before paring much of that drop. The currency is heading for a 10th week of losses against the greenback, with markets betting the European economy can’t withstand higher rates. German bonds clung onto their advance, leaving 10-year government borrowing costs two basis points lower at 2.72%, near a 12-year high touched Thursday. The yield on two-year peers fell one basis point to 3.24%.

What Bloomberg Economics Says…

“The unexpected improvement in the PMI survey is small and activity remains weak. The European Central Bank has still in all likelihood finished increasing interest rates and the risk of a hard landing remains elevated”

—David Powell, senior euro-area economist. Click here for full REACT

Separate S&P Global data for the UK showed private sector companies shed workers at the fastest pace since the pandemic and the depths of the financial crisis more than a decade ago, adding to the risk of a recession. The gauge slipped to 46.8 in September from 48.6 the month before, the sharpest decline in output since January 2021. The reading was worse than economists expected.

In Germany, the performance of the services sector was a “pleasant surprise” as it only contracted marginally this month, S&P Global said. Manufacturing, which has been suffering from a slowdown in the global economy and higher interest rates, led the decline in overall activity.

The numbers for the country’s important industrial sector nonetheless indicate that “things aren’t going downhill as fast as before, with the decline in new orders slowing down,” de la Rubia said in a statement. “In addition, the reduction in purchasing activity is losing momentum.”

In France, both services and manufacturing worsened, sending private-sector activity down by the most since November 2020. There were widespread reports of weak demand in both sectors, and confidence regarding the next 12 months weakened noticeably, S&P Global said.

“The French economy is steering toward some choppy waters,” said Norman Liebke, an economist at Hamburg Commercial Bank. “We think economic growth will be lower in 2024 than previously expected.”

Faster Hiring

He added that inflation is still lurking in France, entirely driven by services, with “not much sign of an impact” yet from the government’s decision to impose price caps on certain food products from July.

Still, the euro-area numbers aren’t “all doom and gloom” as firms are hiring at a somewhat faster pace than the previous month, de la Rubia said. “Thus, companies still show some resilience and optimism in the face of lower demand.”

US figures due later on Friday are expected to show slight growth. Earlier numbers from Australia and Japan indicated expansion, though both countries saw a worsening slump in manufacturing.

—With assistance from Alice Gledhill, Joel Rinneby, Mark Evans and Tom Rees.

(Updates with ECB’s Lane in fifth paragraph.)

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Economy

Liberals announce expansion to mortgage eligibility, draft rights for renters, buyers

Published

7 hours ago

September 16, 2024

Anne Joseph

OTTAWA – Finance Minister Chrystia Freeland says the government is making some changes to mortgage rules to help more Canadians to purchase their first home.

She says the changes will come into force in December and better reflect the housing market.

The price cap for insured mortgages will be boosted for the first time since 2012, moving to $1.5 million from $1 million, to allow more people to qualify for a mortgage with less than a 20 per cent down payment.

The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.

On Aug. 1 eligibility for the 30-year amortization was changed to include first-time buyers purchasing a newly-built home.

Justice Minister Arif Virani is also releasing drafts for a bill of rights for renters as well as one for homebuyers, both of which the government promised five months ago.

Virani says the government intends to work with provinces to prevent practices like renovictions, where landowners evict tenants and make minimal renovations and then seek higher rents.

The government touts today’s announced measures as the “boldest mortgage reforms in decades,” and it comes after a year of criticism over high housing costs.

The Liberals have been slumping in the polls for months, including among younger adults who say not being able to afford a house is one of their key concerns.

This report by The Canadian Press was first published Sept. 16, 2024.

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Economy

Statistics Canada says manufacturing sales up 1.4% in July at $71B

Published

8 hours ago

September 16, 2024

Anne Joseph

OTTAWA – Statistics Canada says manufacturing sales rose 1.4 per cent to $71 billion in July, helped by higher sales in the petroleum and coal and chemical product subsectors.

The increase followed a 1.7 per cent decrease in June.

The agency says sales in the petroleum and coal product subsector gained 6.7 per cent to total $8.6 billion in July as most refineries sold more, helped by higher prices and demand.

Chemical product sales rose 5.3 per cent to $5.6 billion in July, boosted by increased sales of pharmaceutical and medicine products.

Sales of wood products fell 4.8 per cent for the month to $2.9 billion, the lowest level since May 2023.

In constant dollar terms, overall manufacturing sales rose 0.9 per cent in July.

This report by The Canadian Press was first published Sept. 16, 2024.

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Economy

S&P/TSX gains almost 100 points, U.S. markets also higher ahead of rate decision

Published

3 days ago

September 13, 2024

Anne Joseph

TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.

“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.

In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.

The S&P/TSX composite index closed up 93.51 points at 23,568.65.

While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.

Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.

But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.

Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.

“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.

“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.

A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.

It would also be “counter to what they’ve signaled,” he said.

More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.

“That’s going to be more important than the size of the cut itself,” he said.

In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.

“Here, the labour situation is worse than what we see in the United States,” he said.

The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.

The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.

The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.

— With files from The Associated Press

This report by The Canadian Press was first published Sept. 13, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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