Europe to avoid recession this year as gas crisis eases – business live

Ireland is expected to be the fastest-growing EU member this year, today’s Winter Forecasts show.

Ireland’s GDP is forecast to grow by 4.9% in 2023, stronger than the 3.2% forecast in the autumn forecasts three months ago.

Last year, Ireland’s economy is forecast to have grown by 12.2%, a strong performance, and falling inflation should help the economy this year, the EC says.

There isn’t, yet, any visible that job cuts in Big Tech have hit Ireland, today’s report says. But, there is uncertainty over how trade will develop, due to the implementation of the Northern Ireland protocol.

Headline inflation in Europe has peaked, and is set to decline further, commissioner Paolo Gentolini declares.

This is due to “rapidly declining energy prices” he says.

Inflation in the European Union is now forecast to drop, from 9.2% in 2022 to 6.4% in 2023, and fall again to 2.8% in 2024.

[that would still be above the European Central Bank’s target, of 2%, though].

Paolo Gentiloni, European Commissioner for Economy, is presenting today’s Winter Forecasts now.

He starts with the good news:

The EU economy entered this year on a healthier footing than expected, and looks set to escape recession.

There have been “a number of positive developments” since last autumn, Gentolini says, such as the fall in European gas prices below pre-Ukraine war levels – due (he says) to demand restraints, diversification of supply sources, and mild weather.

Better than previously expected growth at the end of 2022, and improving economic sentiment, indicate the European economy is thus set to “narrowly escape” the technical recession projected in the autumn, Gentolini says.

[A technical recession is two quarters of negative growth in a row].

Eurozone growth in 2022 is forecast to be 3.5%, up from 3.2% forecast before, Gentolini adds.

NEWSFLASH: Europe’s economy is expected to avoid falling into recession this year, the European Commission says, with inflation exepcted to be lower than feared.

The EC has just released its new winter forecasts, and has hiked its forecasts for growth in 2023. It no longer expects a recession this year.

Instead, forecasts now expect eurozone GDP to rise by 0.9% during 2023, up from the 0.3% predicted three months ago.

Announcing the forecasts, the EC says:

Almost one year after Russia launched its war of aggression against Ukraine, the EU economy entered 2023 on a better footing than projected in autumn.

The wider European Union is expected to grow by 0.8% (again, up from 0.3% expected before).

The EC says:

Both areas are now set to narrowly avoid the technical recession that was anticipated for the turn of the year. The forecast also slightly lowers the projections for inflation for both 2023 and 2024.

The EC says that “favourable developments” since its Autumn Forecast was released in November have improved the growth outlook for this year.

Crucially, wholesale gas prices have fallen “well below prewar levels”, it says, with gas storage levels above the seasonal average of past years.

Also, the EU labour market has continued to perform strongly, with the unemployment rate remaining at its all-time low of 6.1% until the end of 2022.

Confidence is improving and January surveys suggest that economic activity is also set to avoid a contraction in the first quarter of 2023, the Commission adds.

The growth rate forecast for 2024 remains unchanged, at 1.5% for the euro area and 1.6% for the EU.

Troubled asset management company MJ Hudson has sunk deeper into crisis, with its auditor resigning.

MJ Hudson told the City this morning that it learned late on Friday night that its auditor, Ernst & Young LLP, was tendering its resignation with immediate effect.

The letter of resignation from EY states that:

“we are ceasing to hold office because we have lost trust and confidence in the Company’s management and those charged with governance, and in their ability, along with your finance team, to provide us with accurate and reliable information for audit”.

In October, MJ Hudson announced that it was “engaged in discussions with its auditors” regarding significant potential adjustments in relation to its 2022 financial results.

Then in December, MJ Hudson suspended its finance boss, warned it would not be able to complete its full-year audit by the end of December. Trading in its shares was suspended then too.

Sky News, which broke the news of EY’s resignation last night, says the move is “highly unusual and will underline growing concerns about MJ Hudson’s finances.”

Despite the economic squeeze, UK companies are planning to lift wages this year at the fastest rate in a decade.

But, pay rises are not expected to match last winter’s double-digit inflation rates.

Research from the Chartered Institute of Personnel Development (CIPD) found that 55% of recruiters planned to lift base or variable pay this year as they struggle to hire and retain staff in Britain’s tight labour market.

Private sector firms expect, on average, to lift wages by 5% this year, CIPD say, as companies try to attract new staff…. and retain those they already have.

These pay increases could add to inflationary pressures – something that would concern the Bank of England as it tries to control the cost of living. Around 57% of the firms planning pay rises expect to pay for it through raising prices, rather than lowering profits and absorbing the costs.

The opposite was true 12 months ago, CPID say, suggesting that the tight labour market will increasingly feed through into price rises for organisations’ goods and services.

Jon Boys, senior labour market economist at CIPD, says:

“Skills and labour remain scarce in the face of a labour market which continues to be surprisingly buoyant given the economic backdrop of rising inflation and the associated cost-of-living crisis.

“It’s positive to see many employers taking steps to tackle skills shortages by upskilling existing staff and hiring apprentices. However, the UK Government could provide much-needed support by making the Apprenticeship Levy more flexible, to boost employer investment in training and reverse the decline in apprenticeship starts we’ve seen in recent years.

There was a surge in pub and bar companies collapsing last year, new figures show.

Pub and bar bankruptcies across the UK rose from 280 in 2021 to 512 last year, accountancy group UHY Hacker Young said.

That’s the highest total in a decade, as hospitality venues were hit by rising costs due to the energy price crunch, and tepid demand.

Peter Kubik of UHY Hacker Young says the cost of living crisis has made it hard for hospitality firms to keep operating.

“It’s deeply concerning that so many pubs and bars are closing their doors. In addition to the financial consequences for owners and employees, the loss of a pub can be felt quite keenly by the community.

“This is a particularly difficult period for pub and bar owners, who find they need to spend more and more while earning less and less. Following an extended period of lost revenues during the pandemic, the cost-of-living crisis has been the final nail in the coffin for many.

“Perhaps the Government should consider what it can do to alleviate pressures, for instance, by extending the energy bill relief scheme for the hospitality sector.”

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

The UK may have (narrowly) avoided recession at the end of last year, but businesses remain pessimistic as they cut back on staff as their output falls.

The latest Business Trends Report from BDO, the accountancy and business advisory group, has found that optimism stagnated at the start of this year.

For the third time in just six months, all four of the Indices tracked by the report – Output, Optimism, Employment and Inflation – fell simultaneously.

The BDO’s poll, which covers over 4,000 companies, found a sharp decline in growth last month. Its BDO’s Output Index which tracks economic growth, fell for the fourth month running. It lost 3.45 points to 89.15, remaining well below the crucial 95-point showing stagnation.

The drop in output was driven by falling consumer demand across the services sector, as shoppers cut back.

BDO say the cost-of-living crisis “weakened consumer spending and demand across the services sector”.

Business optimism remained effectively static, BDO reports. Service sector firms were pessimistic, but optimism among manufacturing businesses rose thanks to waning input price pressures.

The economic headwinds buffeting the UK economy pushed BDO’s employment Index down to its lowest point in over a year, as firms cut back on hiring plans.

The outlook “remains bleak” for firms, warns Ed Dwan, partner at BDO:

A net decline across the Optimism, Output and Employment Indices, coupled with historically high levels of inflation, suggests the outlook still remains bleak for businesses, with hiring intentions at their lowest levels in over a year and ever-increasing economic headwinds driving threats of a recession.

Dwan urges chancellor Jeremy Hunt to help businesses in the budget next month.

“With a new Department for Business and Trade in place and a Spring Budget on the horizon, there is space in Government to consider how best to offer firms a helping hand.

Businesses need the right support in place to ensure they can weather the challenges ahead and focus on continuing to drive the growth of the UK’s economy.”

Also coming up today

The European Commission is set to publish its regular winter economic forecasts this morning.

European finance ministers will discuss the energy market, and the eurozone economy, when they meet for a Eurogroup meeting this afternoon.

Europe’s stock markets are set for a calm start, with traders edgy after the US military shot down another flying object on Sunday – the fourth object to be shot down over North America by a US missile in a little more than a week.

Geopolitical tensions are once again in focus among investors and traders, says Naeem Aslam, chief market analyst at Avatrade:

The US military shot down a fourth unidentified object yesterday. The concern among traders is that this unidentified object could also be the Chinese spy balloon. Only a few days back, the US military shot down a suspected Chinese spy balloon, and the second object, which was similar to the first one, was shot on Friday that was flying over Alaska. Republican Mike Turner said that Congress hadn’t received any briefing or report on the unidentified objects, but the American people deserve to know more.

The fear here is that things can get out of control and tensions could flare up between the two major superpowers which could adversely influence sentiment among traders. Traders are highly likely to keep close taps on this matter as it continues to develop more.

The agenda

• 9.30am GMT: UK Office for National Statistics report on home workers

• Noon GMT: India’s inflation report for January

• 2pm GMT: Eurogroup meeting in Brussels