Eurozone health check: growth is up but so is inflation

Good night,

There have been combined alerts on the health of the eurozone economic system at this time as new knowledge confirmed higher than anticipated growth, but larger than anticipated inflation.

The “flash” estimate for the second quarter confirmed gross home product rose 0.7 per cent, in contrast with 0.5 per cent within the earlier three months, pushed by a powerful efficiency from a reanimated tourism sector, particularly in Spain (with growth of 1.1 per cent) and Italy (1 per cent). 

Economists additionally welcomed a strengthening of Spain’s labour market, the place the unemployment fee has hit its lowest degree since 2008. An enhance in everlasting jobs has adopted current reforms, which aimed to chop the excessive proportion of the labour drive on momentary contracts.

France reported larger than forecast growth of 0.5 per cent, due to sturdy exports and a lift from tourism, tempered by considerations that home demand stays flat.

German growth was additionally flat as family and authorities spending helped buoy financial exercise regardless of the upper price of oil and fuel imports. Concerns stay nonetheless {that a} additional squeeze on fuel provides from Russia may tip the nation right into a recession.

Eurozone inflation in the meantime sped up from 8.6 per cent in June to eight.9 per cent in July, due to a 40 per cent soar in power costs and a ten per cent enhance in meals prices. Stripping out these risky gadgets left a rise of 4 per cent — nonetheless double the ECB’s goal fee of two per cent. 

In Germany, the eurozone’s greatest economic system, inflation rose to eight.5 per cent in July from 8.2 per cent in June, fuelled by a 14.8 per cent soar in meals costs.

The warfare in Ukraine — and the fuel disaster particularly — signifies that the outlook for the eurozone within the second half of the yr is bleak and appears even bleaker given the turmoil in Italian politics. Consumer confidence is already at its lowest degree ever, in keeping with European Commission knowledge.

Today’s inflation figures enhance the probability that the European Central Bank, which final week raised rates of interest for the primary time in additional than a decade, will announce one other 50 foundation level enhance in September.

Compare rising costs nation by nation with our international inflation tracker

Latest information

• Oil costs surge $4 a barrel as probabilities of Opec+ provide enhance dim (Reuters)

• US client sentiment stays close to report low

• RMT union members at Arriva Rail London vote for strike motion (PA)

For up-to-the-minute information updates, go to our stay weblog

Need to know: the economic system

New inflation and wage knowledge supplied little aid for the US Federal Reserve after it raised rates of interest by 0.75 factors for the second consecutive month on Wednesday. The core private consumption expenditures index, the Fed’s most well-liked measure of inflation, rose 1 per cent in June, lifting the annual fee to six.8 per cent from 6.3 per cent. Stripping out risky gadgets resembling meals and power left the “core” PCE studying up 4.8 per cent, nonetheless greater than double the Fed’s goal.

It follows yesterday’s information that the US economic system shrank for the second quarter in a row by 0.9 per cent on an annualised foundation. US economics editor Colby Smith tackles the massive query: Is the US in recession? (TLDR: it relies upon.)

Latest for the UK and Europe

Consumer borrowing within the UK doubled final month, in keeping with the Bank of England, as folks resorted to bank cards and different types of debt to deal with the surging price of dwelling.

The way forward for UK financial coverage continues to dominate the hustings for the subsequent prime minister. Bookies’ favorite Liz Truss dismissed the thought of additional windfall taxes on power firms, whilst Centrica, the proprietor of British Gas and the nation’s greatest power retailer, reinstated its dividend and reported that working earnings have elevated greater than fivefold through the power disaster.

Poor productiveness is recognised as one of many principal issues holding the UK again. Columnist Tim Harford went to Legoland for inspiration, but bemoaned the truth that its technique of specializing in the great things and “shoving the rest down the memory hole” now seems to be the central plank of presidency technique.

Global newest

US president Joe Biden is set for 2 important legislative wins forward of November’s midterm elections. A $280bn package deal authorises subsidies for the semiconductor {industry} whereas a sweeping invoice on tax, local weather and social spending additionally appears set to go.

Argentina has appointed its third official to take cost of the nation’s troubled economic system in lower than a month. Sergio Massa, a Peronist chief in Congress, can be accountable for a ministry that oversees financial, manufacturing and agricultural coverage.

Companies and traders are abandoning most of Latin America’s stock markets, writes LatAm editor Michael Stott, due to a decade of gradual growth, weak currencies and unhealthy headlines. At the top of 2012, the area accounted for simply 6.4 per cent of MSCI’s international rising market stock index — lower than a 3rd of its weight in 2010.

China’s central financial institution has proposed an bold try to revive the nation’s debt-stricken property sector with a $148bn bailout for actual property tasks. The property downturn performed a big function in lowering financial growth to simply 0.4 per cent within the second quarter.

Need to know: enterprise

Positive outcomes from Big Tech have put stock markets on observe for his or her finest month since November 2020. The newest come from Amazon, which reported higher than anticipated revenues and an improved outlook, and from Apple, which recorded growth in revenues regardless of provide chain issues in China. However, Intel reported an surprising drop in income and lowered its forecasts, sending its shares plunging.

Energy is the opposite standout sector as firms reap the dividend of hovering costs. ExxonMobil and Chevron each reported report quarterly earnings, whereas Shell broke its revenue report for the second quarter in a row and introduced a $6bn share buyback.

British Airways mum or dad IAG reported its first revenue because the pandemic hit, regardless of persevering with industry-wide disruption. In the US, Southwest recorded report earnings as demand surged but warned of issues forward. JetBlue agreed to purchase rival Spirit for $7.6bn to create the fifth-largest US airline, though the deal might face regulatory challenges.

Carmaker outcomes highlighted sturdy demand on the prime finish of the market. Renault upgraded its forecasts because it focuses on dearer fashions, whereas Bentley reported elevated earnings due to gross sales of its luxurious autos. Stellantis — producer of the Jeep, Alfa Romeo, Peugeot and Fiat manufacturers — was in a position to shrug off provide issues to extend pricing and report web earnings up by a 3rd.

There was much less excellent news for UK automotive manufacturing, as the worldwide chip scarcity means it won’t return to producing 1mn autos a yr till no less than 2025 — two years later than anticipated. Losses have soared at Aston Martin due to provide chain bottlenecks.

Meanwhile, one other sector benefiting from the demand from luxurious gadgets is the drinks market, the place Diageo is benefiting from booming gross sales of “super premium plus” spirits manufacturers resembling Don Julio tequila and Bulleit bourbon.

Colgate turned the most recent massive client group to announce worth rises because it handed on growing prices to clients. Nestlé yesterday stated growing costs 6.5 per cent had enabled it to lift its gross sales forecast for the yr. Hershey too seems to have gotten away with elevating costs.

Science spherical up

The newest wave of Covid circumstances in England, Wales and Scotland, pushed by the BA.5 variant, seems to be in retreat, in keeping with official knowledge. About one in 20 folks have been contaminated within the week to July 20, in contrast with one in 17 the earlier week. The knowledge are collected from personal households and exclude infections in hospitals or care properties.

There has been a pointy rise in weight problems in lots of nations through the pandemic due to causes resembling disrupted routines and elevated stress. Chief knowledge reporter John Burn-Murdoch says it’s time to shift the main target from particular person accountability to how we stay and work.

A brand new report has put a worth on the financial impression of lengthy Covid within the UK. On common, victims have been dropping about £1,100 a month in earnings, including up to £1.5bn in mixture throughout the economic system. Official knowledge for May confirmed that about 2mn folks had lasting Covid signs.

Corporate outcomes this week supplied some tips about the event of Covid vaccines and therapies. Pfizer’s Paxlovid antiviral drug is one of many quickest promoting medicines in historical past, with annual gross sales this yr forecast to hit $22bn. There may nonetheless be a surplus of 70mn doses by the top of the yr as affected person uptake slows.

Strong gross sales of the Evusheld Covid-19 antibody therapy, which helps defend individuals who don’t reply to vaccines, gave a lift to AstraZeneca within the first half of the yr. Sales hit $445mn, virtually equalling revenues from the corporate’s vaccine developed with the University of Oxford. Evusheld gross sales are nonetheless anticipated to extend, not like gross sales of the jab.

Get the most recent worldwide image with our vaccine tracker

Some excellent news 

The Commonwealth Games, which received beneath method in Britain’s second metropolis of Birmingham this morning, is being billed as an enormous advance for athletes with a incapacity. Unlike different main occasions, the para-sport programme is totally built-in, with all medals contributing to the grand whole for every nation. Here are the BBC’s tips on what to watch.