French and Italian economies shrink unexpectedly in blow to eurozone – business live

In a fresh sign of a Boris Bounce, UK mortgage approvals have hit their highest level since mid-2017.

Some 67,241 mortgages were signed off in December, up from 65,514 in November, and higher than expected. That may show the housing market is heating up, after being dragged back by Brexit uncertainty and political deadlock.

City news: Aston Martin has been rescued in a £500m deal, partly funded by billionaire Lawrence Stroll.

As part of the deal, the luxury carmaker will enter Formula One (where Stroll’s son Lance currently wizzes about).

Aston Martin is also tapping up its long-suffering shareholders through a rights issue, letting them buy new stock at £4 — compared to the £19 they paid when it floated in 2018. Hopefully Aston Martin’s new F1 cars will do a little better.

While Europe’s economies stumble, the British pound is enjoying a little rally as the Brexit hour approaches.

Sterling is up around 0.3% this morning, hitting €1.192 against the euro for the first time since mid-December.

The pound is benefitting from yesterday’s Bank of England decision to leave interest rates on hold, dashing expectations of a cut.

Traders are also looking ahead to the UK’s trade negotiations. Prime minister Boris Johnson is expected to indicate on Monday that he will push for a basic trade deal based on that between the EU and Canada. Such a deal could be easier to agree by the end of the transition period in December.

But Downing Street has been warned that another crucial deal, with America, will be tricky.Kim Darroch, the outgoing British ambassador to Washington, has told the Guardian that Donald Trump will demand higher NHS drugs prices — and questioned whether the UK can really negotiate with the US and EU at the same time….

https://www.theguardian.com/politics/2020/jan/31/trump-will-put-us-interests-first-in-trade-talks-says-kim-darroch-ambassador

Newsflash: Italy’s economy has also contracted, raising further concerns over the health of the eurozone.

Italian GDP shrank by 0.3% in the final three months of 2019, new figures show. That’s the worst quarterly performance since early 2013.

ISTAT, Italy’s statistics body, blamed weak domestic demand, with industry and agriculture shrinking and services broadly flat.

Economists had expected the economy to stagnate, but not actually shrink, so this is a blow to Rome.

On a year-on-year basis, GDP was unchanged compared to the fourth quarter of 2018 – further highlighting Italy’s weak economy.

With France also shrinking, this is turning into a bad morning for the eurozone….

Asia-Pacific stock markets have suffered fresh losses today, as traders continue to be gripped by coronavirus fears.

South Korea’s KOSPI index continued to bear the brunt, down another 1.3% — having lost around 2.8% on both Wednesday and Thursday following the Lunar new year.

With China’s markets still shut, Hong Kong lost another 0.5%.

Japan, though, rallied 0.5% – but still posted its worst weak in six months.

It may not be all bad news for France.

Derek Halpenny of MUFG suggests growth could pick up this quarter, if firms restock after running down their inventories at the end of 2019:

France confirmed this morning that the economy contracted in Q4 – real GDP fell 0.1% Q/Q, well below the consensus +0.2%. The good news however is that the downside surprise reflected an inventory liquidation – excluding inventories real GDP would have expanded by 0.3% Q/Q. So we may see that growth come back in Q1.

Better news: Spain’s economy has grown by 0.5% in the last quarter of 2019

That’s up from 0.4% in Q3, partly making up for France’s decline.

Today’s weak French GDP report is a blow to Emmanuel Macron, says Bloomberg:

Gross domestic product in the region’s second-largest economy fell 0.1% in the fourth quarter amid a decline in exports and a huge drag from inventories. All of the economists surveyed by Bloomberg had predicted growth. Without the inventory effect, growth would have been about 0.3%, according to Bloomberg Economics.

Still, the contraction is a sting for Macron, who’s already facing mass protests and strikes against his pension reforms, and which have disrupted household spending. His government has repeatedly pointed to France’s relative strength in Europe as a sign his reforms of taxes and labor laws are working.

European economists are disappointed to see that France’s economy has contracted.

UBS’s Filip Lipev says the GDP data is worst than expected, due to weak domestic demand….and a bad start to the day.

Ludovic Subran, chief economist at Allianz, blames the anti-government strikes that have gripped Paris for many months:

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

France’s economy has suffered a shock contraction, raising fresh concerns about the heart of the Eurozone — on the day Britain leaves the EU.

French GDP contracted by 0.1% in the fourth quarter of 2019, new figures from statistics body INSEE show. That’s down from 0.3% growth in July-September, and much worse than the 0.2% forecast.

The decline was driven by a slowdown in consumer spending, and a sharp drop in business investment growth.. Companies also ran down their inventory stocks, suggesting nervousness about the future.

Imports and exports both declined — a worrying sign for the health of the economy.

President Macron will surely be concerned — this is the first time France’s economy has contacted since he took office.

INSES says:

Household consumption expenditures slowed down slightly (+0.2% after +0.4%), and total gross fixed capital formation decelerated in a more pronounced manner (GFCF: +0.3% after +1.3%). Overall, final domestic demand excluding inventory changes slowed down compared with the previous quarter: it contributed to +0.3 points to GDP growth, after +0.7 points.

Imports fell back this quarter (–0.2% after +0.6%) as well as exports (–0.2% after –0.3%). All in all, the contribution of foreign trade balance to GDP growth was zero, after a negative contribution (–0.3 points) in the previous quarter. Changes in inventories contributed negatively to GDP growth (–0.4 points after –0.1 points).

France is the first major European country to post GDP figures for the last quarter, so this is a worrying sign – especially as Germany only narrowly avoided recession last year.

It means France’s economy only grew by 1.2% in 2019, down from 1.7% in 2018.

We’ll find out later this morning how Italy fared, and then how the overall eurozone performed during the last quarter.

Reaction to follow….

The agenda

• 9am GMT: First estimate of Italian GDP for Q4 2019
• 9.30am GMT: UK mortgage approvals figures for December
• 10am GMT: First estimate of Eurozone GDP for Q4 2019