Trade data fuels eurozone recovery hopes

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Good evening.

Promising eurozone trade data this morning has fuelled hopes that the big shock caused by Russia’s full-scale invasion of Ukraine is finally being unwound as energy prices fall back and exports pick up.

The balance of trade in goods hit €28bn in January, its highest level since authorities started tracking the data in 2002. Last year, the eurozone recorded a trade surplus of €64bn, in contrast with the record €335bn deficit it suffered in 2022.

Today’s data comes as a welcome antidote to a run of poor news on the strength of the single currency bloc, especially in Germany, its biggest economy. That country accounted for much of the eurozone’s improved position with its highest overall trade surplus for more than six years.

Germany was the world’s worst-performing big economy last year, according to the IMF, thanks to a combination of high interest rates and inflation, raised energy prices and lower export demand. Although growth is forecast to be just 0.2 per cent this year, after a shrinking of 0.3 per cent in 2023, Berlin does not expect a large impact on unemployment.

France, the bloc’s second-biggest economy, has a budget shortfall for this year “significantly” above target and is planning more spending cuts.

The war in Ukraine is creating additional financial stress for Europe’s Nato members, which are under pressure to increase defence spending to meet the alliance’s target of 2 per cent of gross domestic product. According to Germany’s Ifo Institute, many of the EU states with the biggest shortfalls — including Italy, Spain and Belgium — also have among the highest levels of debt and budget deficits in Europe.

Business also faces a tough year ahead. European banks need to steel themselves for a year of rising insolvencies, geopolitical risks and upheaval in energy-intensive industries, according to the eurozone’s new banking supervisor.

The European Central Bank’s Claudia Buch told the FT in an interview today that the sector was “not out of the woods yet” and that the effect of record high interest rates still had to filter its way through the financial system, with loan defaults and bankruptcies likely to continue for some time.

Stickier-than-expected eurozone inflation — confirmed today at 2.6 per cent for February — suggests the last mile of the fight to constrain rising prices could be harder than expected.

ECB chief Christine Lagarde has said she still wants “more evidence” that inflation has been tamed, signalling that June was likely to be the earliest time to cut interest rates. The ECB has, however, cut its forecasts, suggesting inflation for this year will fall to 2.3 per cent before hitting its 2 per cent target next year.

Global inflation and interest rate tracker: see how your country compares

Need to know: UK and European economy

UK Prime Minister Rishi Sunak said the economy had “turned the corner” as he sought to quell discontent from his party over his leadership. He also announced reforms to help small businesses, including cuts to red tape and a new task force for female entrepreneurs. Chief economics commentator Martin Wolf says the country needs a broader transformation.

A case in point is the war on poverty. An FT Big Read details how almost a third of children are living in relative poverty in the UK, where it has increased more than in any advanced economy.

Climate activists prosecuted in England and Wales for criminal damage have lost the right to use an important defence that has led to a series of acquittals, following a landmark ruling from the Court of Appeal. Judges said evidence presented by defendants about the effects of climate change would be “inadmissible” in future cases.

Need to know: global economy

The Federal Reserve will need to hold interest rates at a higher level for longer than markets and central bankers anticipate, according to economists in an FT-Chicago Booth poll. Traders have been expecting three cuts this year, beginning in June or July. Columnist Rana Foroohar says that, despite moves on subsidies and tariffs, the US still lacks an industrial policy.

China’s industrial activity jumped 7 per cent at the start of the year, boosting hopes of an economic recovery after a period marked by deflation, low consumer confidence and a property cash crunch.

The International Development Association, the World Bank’s fund for the poorest nations, is seeking a record amount of money to tackle mounting debt and climate crises, its chief fundraiser told the FT.

The Dominican Republic has bucked the downward trend in Latin American economies, delivering Asian-style growth averaging 4.9 per cent a year over the past half-century. The reason, President Luis Abinader told the FT, was its pro-investment, pro-business government, balanced by increased social spending.

Need to know: business

Mike Lynch, founder of UK software company Autonomy, goes on trial in San Francisco today, 13 years after what US prosecutors have called “the largest fraud in the history” of Silicon Valley. Lynch, who sold the company to Hewlett-Packard for $11.7bn in 2011, faces charges that he falsified Autonomy’s accounts in the two years before the deal.

Telecom and tech giants are being forced to reroute internet traffic after attacks in the Red Sea put undersea cables at risk, affecting connectivity and services around the world.

A group of the world’s biggest oil and gas companies are expanding a satellite monitoring campaign to detect methane emissions in emerging economies after 26 large leaks of the planet-warming gas were found over Kazakhstan, Egypt and Algeria. Saudi Aramco’s chief executive said the world should “abandon the fantasy of phasing out oil and gas”.

Commodity traders are sitting on cash reserves of up to $120bn after five years of record growth, largely as a result of the Ukraine war.

Retail correspondent Laura Onita assesses how John Lewis and Marks and Spencer are faring in the battle for affluent English shoppers. John Lewis last week reported a return to profit after three years of losses.

The world of work

UK statisticians are threatening to strike over an order to go back to the office. The PCS union said that workers at the Office for National Statistics
had been given flexibility to work where they wanted and many of its members had accepted jobs at the agency on that understanding.

Globally, women still earn 77 cents for every $1 paid to men, and spend an average of 2.4 hours more a day doing unpaid care work. The failed referendum on the role of women in Ireland is just the latest example showing the long effort to overturn inequality still has much further to go, argues columnist Pilita Clark.

Workaholism, which can cause profound and long-term damage to individuals, is an addiction that needs to be recognised and treated, just like any other substance or behavioural issue, says Working It newsletter and podcast host Isabel Berwick.

Innovation editor John Thornhill says we should treat the forthcoming AI-driven changes to employment as an opportunity rather than a threat.

Chat apps such as Slack that have helped create a new workplace culture of nonstop, informal chatter are here to stay, writes the Lex column’s Elaine Moore.

Some good news

A new drug could be a promising weapon in the fight against Lyme disease, a problem that affects humans and pets alike. About 476,000 people in the US are diagnosed and treated for it each year.

Source: Economy - ft.com