Europe Hanging In There

Italy is in a recession

Image source: LoulouVonGlup, mike_green - Shutterstock

What's going on?

Data on the eurozone’s economic growth in the last quarter of 2018 was released on Thursday – and it wasn’t too bad. Unless you’re Italian, that is…

What does this mean?

The euro-spending economy grew by 0.2% in the fourth quarter compared to the third – 1.2% up on the same time a year ago. That’s exactly what economists had predicted, having analyzed swaths of data in January showing that any hope of a growth improvement was a long shot.

Still, at least the eurozone did grow overall. The Italian economy shrank for the second quarter in a row compared to the previous one, according to data out on Thursday – meaning the country’s now in a dreaded recession. Struggling industries like fishing and forestry shouldered the blame – increasing the risk that the country fails to repay its positively Apennine debts.

Why should I care?

The bigger picture: Europeans drowning their sorrows.

Consumer goods giant Unilever reported fourth-quarter sales that missed investors’ forecasts on Thursday. That was thanks to “developed markets”: European sales were only 1% higher than last year, while American sales didn’t grow at all. Europe’s meager growth might be explained by falling consumer confidence leading shoppers to rein in spending on big-name brands (especially as Unilever raises their prices). Instead, they drink: British spirit maker Diageo’s results for the last six months were better than expected, helped by surprisingly strong European sales.

For markets: Investors skirted the issue.

Investors’ Thursday focus seemed to be on the US Federal Reserve’s comments late on Wednesday. The Fed said it could be patient with future interest rate increases – and flexible about the speed at which it removes other market props in place for a decade. In spite of Europe’s weak economy, investors bought up stocks globally, since lower-for-longer rates should help companies grow more quickly. That helped give world stocks their best month since March 2016, and US stocks their best January since 1987.

Originally posted as part of the Finimize daily email.

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