The energy crisis triggered by Russia’s invasion of Ukraine, combined with high inflation and rising interest rates, has raised fears of a euro zone economic downturn this winter. But Toni Ruiz, chief executive of Spanish fashion retailer Mango, said sales were proving pessimists wrong.
“After months and years of Covid, people want nice, elegant clothes,” Ruiz told the FT. “People are tired of basic clothes. So what we’re seeing is a huge takeoff.” .”
Across the region, market sentiment picked up. Low unemployment, increased government fiscal support, a pullback in energy prices from their August peak and a mild autumn that has helped natural gas storage facilities run near full capacity in the summer have all improved the outlook.
“I’m as worried as anyone else, but it’s more about seeing the glass half full,” Antonio Simmons, head of European operations at Spain’s largest lender Santander, told a conference this week.
Even in Germany, where manufacturers were hit hard by soaring energy costs as Russian supplies dwindled, there were signs of more cautious optimism among businesses.
“Despite the shock to energy prices, production in most industries and services held up well,” said Klaus Deutsch, director of research, economics and industrial policy at Germany’s BDI business association. to do.”
The BDI told the Financial Times that it had been “too pessimistic” and that in January it may have raised its September forecast for the German economy to grow by 0.9% this year. The Ifo Institute’s German business confidence index rebounded to 86.3 in November from 84.5 in October, while the Munich-based think tank also found that three-quarters of companies that use natural gas in production have reduced consumption without cutting production. .
Most economists still expect the euro zone to slip into a mild recession – defined as two consecutive quarters of falling output – and central bankers have warned they will have to raise borrowing costs again in December.
However, following a resilient 0.2% growth in the G-19 in the third quarter, there are signs that many may be overestimating the drag on consumer spending and industrial output from high inflation and underestimating the impact of the cancellation of the Covid-19 pandemic. Boost from restrictive measures.
Retail spending in the euro zone and across the EU rose 0.4% between August and September, while industrial production rose 0.9% over the same period, both indicators above pre-pandemic levels.
Monthly surveys of European Union businesses and households released on Tuesday showed economic confidence rose more than expected to hit a three-month high. Consumer sentiment rose across the EU as people became more willing to make big purchases, while service firms forecast higher demand and industrial groups turned more optimistic about production forecasts.
Members of Germany’s blue-chip Dax index are on track to pay record dividends next spring, according to research published Tuesday by business newspaper Handelsblatt.
The industrial powerhouses of the euro zone did not emerge from Russia’s invasion of Ukraine unscathed. Production fell in energy-intensive industries such as chemicals, paper and glass, which are particularly vulnerable to higher gas and electricity prices. But those industries account for just 4 percent of Germany’s economic output, and many companies have been able to offset the blow with higher prices.
While Mango’s raw material costs have fallen recently, Ruiz said he expects inflation to remain an issue for the fashion chain for the next two to three years, noting that staff, rent and electricity costs at its 1,700 stores in Europe are falling sharply. rise.
An executive at a major German group has warned that households are still not seeing the full impact of soaring energy costs. Products made in September won’t be available to customers until March 2023, when energy costs remain near record highs, he noted.
But even on the inflation front there is some good news. Consumer price growth appears to have peaked, with inflation falling to 10% in November from a record high of 10.6% in October.
In France, concerns over energy prices eased during a fuel crunch exacerbated by strikes by refinery workers in October, but eased. For the first time since July, business leaders are more optimistic about the outlook, according to a survey of more than 600 company chiefs released this week by CCI France, the French chambers of commerce.
CCI France found that healthy order books in construction and other sectors, coupled with easing supply chain bottlenecks for some components and falling raw material costs for inputs such as steel, were driving the shift.
Italian industry trade association Confindustria said output in manufacturing and services held up well, although construction stagnated. But some of the gloom over the association has simply been postponed until next year. 2023 could see a slowdown due to “lower liquidity due to higher interest rates and higher utility bills”.
Others think next winter will be tough. “We’re seeing signs of gradual improvement,” said Rolf Hellermann, financial director of German publisher Bertelsmann. “[But] Building up Germany’s gas supply and storage could be more challenging [next year] Inflows from Russia are much lower compared to 2022. ”
Additional reporting by Patricia Nilsson, Sarah White and Silvia Sciorilli Borrelli