Russia's Economy Avoided Dire Predictions, Euro Area Confidence Improved

Bridgette Randall
20 Feb, 2023
Frankfurt

European markets gyrated and benchmark indexes struggled to find direction after geopolitical tensions rose in North Asia. 

Tensions between the U.S. and China rose after diplomats sparred at the Munich Security Conference on Friday ahead of the one-year anniversary of Russia's invasion of Ukraine.  

U.S. President Joe Biden made an unannounced visit to Kyiv, Ukraine ahead of the one-year anniversary in a show of support to the struggling nation under military invasion. 

Tensions are also on the rise in the European Union after energy prices soared five-fold and the cost of living crisis has spread from Germany, France, to the UK.  

The war in Ukraine is showing no signs of ending as the first anniversary of the war approaches and consumers in the European Union are struggling with sky high energy prices and the European Union governments are weighed down by a surge in national debts. 

In addition, the Russian economy shrank under widening sanctions from the United States and European Union but the resource export dependent economy is showing no signs of cracking as predicted by most western economists and analysts. 

 

Russia's Economy Avoided Dire Predictions 

Russia's economy contracted 2.1% in 2022, the Federal State Statistics Service reported Monday. 

The GDP declined far less-than-expected in the year after energy prices soared as much as five-fold before cooling off in the last quarter. 

Immediately after the Russia's invasion to Ukraine, most economists in the U.S. and western Europe estimated Russia's GDP to collapse at least 12% and and estimates ran as high as 25%.      

The statistics office also upwardly revised 2021 economic expansion to 5.6% after the share of exports in the economy was revised higher. 

 

Geopolitical Tensions Rise In Asia 

North Korea fired two short-range missiles on Monday, the defense ministry confirmed Monday. 

Two missiles traveled between 350 kilometers and 400 kilometers and plunged to the Sea of Japan near the economic zone. 

Monday's launch followed the firing of the long-range missile on Saturday that reached waters near Hokkaido. 

Tensions were high after balloon spat between China and the U.S. escalated and showed no sign of easing. 

Moreover, Japanese diplomats also stepped up activities and notified Chinese counterparts that Japan will knock down aerial objects that violate its airspace.  

Prime Minister Fumio Kishida requested an emergency meeting of the United Nations Security Council and the meeting is expected to be held in New York on Tuesday at 8 p.m. Eastern Time.  

 

Consumer Confidence Improved In Euro Area 

Consumer confidence index increased 1.7 points to -19.0 in the Euro Are and recovered 1.5 points to -20.6 in the European Union, according to a report released by the European Commission Monday. 

Despite the confidence improving for the four months in a row, the index remained well below its long term average. 

 

European Markets 

The DAX index declined 4.45 points to 15,477.55, the CAC-40 index dropped 12.11 points to 7,335.61 and the FTSE 100 index increased 9.95 points to 8,014.31. 

The yield on 10-year German Bunds inched up to 2.469%, French bonds edged higher to 2.93%, the UK Gilts to 3.47% and Italian bonds to 4.33%. 

The euro inched lower to $1.0683, the British pound traded near $1.203 and the Swiss franc held firm at 92.30 U.S. cents. 

Brent crude oil increased $1.21 to $84.21 a barrel and the Dutch TTF natural gas spot price inched up 1.5% to Є49.87 per MWh. 

 

Europe Movers 

Resource and metals companies traded higher on the hopes of a rebound in China demand. 

Glencore plc increased 1.9% to 519.40 pence, Anglo American increased 0.3% to 3,219.0 pence and Antofagasta Plc added 0.2% to 1,733.36 pence. 

Valneva SE increased 0.7% to €5.82 after the French biotech company said that the U.S. Food and Drug Administration granted priority status for its Chikungunya vaccine VLA1553 application. 

Raiffeisen Bank International AG fell 7.3% to €15.25 after the Austrian bank said that the U.S. Office of Foreign Assets Control has launched an inquiry into the bank's business related to Russia.