So Near, Yet So Far

Data out on Friday showed the European economy grew at its slowest rate since the bloc’s debt crisis seven years ago.

Image source: Saranya Loisamutr, sonia.eps, Merydolla, Yevgenij_D - Shutterstock, u/neuralfirings - Reddit

What's going on?

Investors – lured in by surveys that suggested a tasty future for the eurozone – found their hopes dashed on Friday, when data showed the European economy grew at its slowest rate in seven years.

What does this mean?

Europe’s economy grew just 0.1% in the fourth quarter of last year – the slowest pace since its debt crisis a few years ago. That’s yet another downer for a bloc that, in December, saw its industrial production fall by the most in almost four years, and its retail sales drop by the most in a decade.

Growth in Germany, Europe’s largest economy, flatlined in the last quarter of 2019. It’s been facing a host of global issues – think Brexit and the US-China trade war – as well as a bunch of domestic ones, like the tighter emission standards hobbling its autos industry. Speaking of which, the country probably let out an emission of its own when it heard the coronavirus (or should that be COVID-19?) had forced its largest carmaker to shut down its Chinese plants…

Why should I care?

For markets: My big fat Greek bond.
Despite the weak data, investors sent European shares to a record high on Friday. Maybe they were already predicting poor growth after the dismal industrial production and retail sales reports, and simply shrugged it off. Or maybe they’re now expecting the European Central Bank will lower interest rates and buy up more government bonds. The latter might explain why the yield on Greek bonds (which moves inversely to bond prices) hit a record low on Friday – even though the country was at the heart of the bloc’s debt crisis eight years ago.

Zooming out: Wipeout.
It’s not just German carmakers that are struggling: France’s Renault saw its 2019 profit virtually wiped out when it reported results last Friday, as earnings from its core business and its stake in Nissan both fell. The carmaker’s responding by selling off some assets, closing down some factories, and – unfortunately for investors – slashing its dividend by 70%.

Originally posted as part of the Finimize daily email.

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