Eurozone’s stocks struggle

The eurozone “is on the brink of recession”, says Szu Ping Chan in The Telegraph. Output in the single-currency area shrank by 0.1% in the three months to the end of September, the first contraction since the 2020 lockdowns. Another fall in the current quarter would meet the technical definition of a recession – two consecutive quarters of shrinking GDP. 

The “good news” is that the eurozone is “set to avoid a deep contraction”, says Balazs Koranyi for Reuters. The overwhelming sense is more of stagnation than a big recession. But that is cold comfort when growth catalysts are so hard to see. Europe has been hit hard by the energy price spike that followed Russia’s invasion of Ukraine, says Paul Hannon in The Wall Street Journal. 

There has also been a post-pandemic slump in international trade, dealing a particular blow to Germany’s export-oriented manufacturers. On an annualised basis, eurozone GDP fell by 0.4% in the third quarter, even as US GDP soared by 4.9% in the same period.

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Stronger US growth partly reflects greater government profligacy, say Valentina Romei and Colby Smith in the Financial Times. Washington ran a primary budget deficit of 9.4% of GDP in 2021, “more than double the level of the eurozone”. US households are thus splurging on the national credit card. But America also enjoys structural advantages as the world economy becomes ever more technology-dominated. There are no European equivalents of giants such as Amazon and Google. That didn’t matter so long as China kept buying German cars and Italian machinery. Germany was “a massive winner [from] globalisation the way it existed until 2018, but that type of globalisation now seems to be over”, says Christian Keller of Barclays Investment Bank. Protectionism is rising and China has established a lead in the electric-car industry.

Southern Europe outperforms the north

The pan-European Stoxx Europe 600 index enjoyed a strong start to the year as the continent escaped a widely feared energy crunch last winter. It is still up by 6.5% in 2023 but has gone nowhere since July as the German economy stumbles and the luxury boom that had propelled Parisian stocks cools.

This year has turned out to be better in Milan and Madrid than in Frankfurt and Paris, says Bastien Bouchaud in Les Echos. Shares in Italian banking giant Unicredit have gained 84% in 2023, with Spain’s Banco Santander up by 32%. 

Italian and Spanish banks have been boosted by rising interest rates and unexpectedly strong growth. Italy’s GDP has risen by 3.3% since late 2019 and Spain’s by 2.2%. By contrast, Germany has grown just 0.3% in that time. After being lectured endlessly by German politicians during the euro crisis, southern Europe is finally enjoying a degree of “revenge”.

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