February 1, 2023

Europe could dodge a recession. But the UK economy is in a mess

3 min read


Business activity in the 20 countries that use the euro expanded in January for the first time in six months, according to data published on Tuesday, providing fresh evidence that Europe’s economy may be defying expectations. Avoid recession this year.

Early studies of the Eurozone Purchasing Managers’ Indexwhich tracks activity in the manufacturing and services sectors, rose to 50.2 in January from 49.3 in December, signaling the first expansion since June. A reading above 50 represents progress.

Helped return to modest growth Lower energy prices and easing supply chain tensions, which helped reduce rising input costs for producers.

The increase was accompanied by a sharp improvement in optimism about the coming year, just like the recent one Reopening China’s Economy The lifting of Covid restrictions helped push confidence to its highest level since last May. Growing hope in Europe that Chinese consumers will start spending again is reflected in Swiss watchmaker Swatch.

Record sales forecast for 2023 on Tuesday.

Chris Williamson, chief business economist at S&P Global Market Intelligence, which publishes a survey of private-sector company executives, said: “The stabilization of the eurozone economy at the start of the year adds to the evidence that the region is in recession. can escape the market.”

Williamson added, however, that a “slide towards valuation” should not be ruled out as borrowing costs rise due to interest rate hikes by the European Central Bank. But any downturn is “likely to be less severe than first feared,” he said.

“The still low level of consumer confidence and the fallout from the ECB’s rate hikes still point to a modest near-term decline in eurozone GDP,” Holger Schmieding, chief economist at Berenberg, said in a research note. indicate before recovery begins.”

Consumer sentiment in Germany, the region’s largest economy, appeared to improve for the fourth straight month in February from a narrow base, according to one. A separate survey GfK published on Tuesday.

The picture looks much less promising in the UK, however, where it is January. PMI survey Business activity showed the steepest drop since the national Covid lockdown two years ago, as high interest rates and low consumer confidence hit activity in the dominant services sector.

The preliminary reading fell to 47.8 in January, from 49 in December, the sixth straight month of contraction. The UK survey was conducted in association with the Chartered Institute of Procurement and Supply.

“The weaker-than-expected PMI numbers in January signal the risk of the UK slipping into recession,” Williamson said. “Industrial disputes, staff shortages, export losses, rising cost of living and high interest rates meant the rate of economic decline accelerated again at the start of the year,” he added. ”

The UK economy lost more working days due to strikes between June and November 2022 than in any six-month period in the past 30 years, according to figures published last week by the UK’s Office for National Statistics. Wasted.

Williamson said Tuesday The figures reflect not only the short-term impact on growth, such as strike action, but also “the damage to the economy from longer-term structural issues such as labor shortages and trade worries linked to Brexit.”

Despite a gloomy start to the year, UK business expectations for next year rose to their highest level for eight months, driven by an improving global economic backdrop and hopes of cooling inflation.

Separate figures published by the ONS on Tuesday showed British government borrowing rose to £27.4 billion ($33.7 billion) in December, the highest for the month since records began in 1993. is the most Rising cost of paying bills as well as interest on government debt.

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