Eurozone Inflation Confirmed at 2.4%, Economic Growth to Accelerate In France

Bridgette Randall
19 Dec, 2023
Frankfurt

European market indexes erased morning gains, and investors debated the future rate path and economic growth outlook for the next year.

Investors also digested the release of the consumer price index for the eurozone and the European Central Bank's directive for 20 banks to increase capital to cover potential losses from bad loans.

The yields on bond issues in the Euro Area held stable near a 9-month low, and the euro held its ground against the U.S. dollar.

 

Eurozone Inflation Confirmed at 2.4%

Consumer price inflation was confirmed to decrease by 0.5% from the previous month to 2.4% in November, Eurostat reported on Tuesday.

The inflation dropped to the lowest since July 2021 after service inflation eased to 4.0% from 4.6%, food, alcohol, and tobacco inflation slowed to 6.9% from 7.4%, and non-energy industrial goods inflation dropped to 2.9% from 3.5%.

Energy prices dropped 11.5% in November after falling 11.2% in the previous month.

Moreover, the statistical agency confirmed core inflation, which excludes food and energy prices, held at 3.6%, the lowest since April 2022.

 

Bank of France Estimated Economic Growth to Accelerate Over 3 Years 

The Bank of France lowered its estimate of GDP growth slightly to 0.8% from 0.9% in 2023 and estimated a gradual acceleration in growth over the next three years.

GDP growth is expected to pick up to 0.9% next year and accelerate further to 1.3% in 2025 and 1.6% in 2026.

The latest announcement from the central bank of France suggested that the second-largest economy in the eurozone is likely to avoid a recession.

"This acceleration in 2026 assumes that the effects of recent shocks to the French economy—external tax shocks, tightening of monetary and financial conditions—will have abated by that time," the bank noted in the statement released Tuesday.

Overall inflation is expected to be 5.7% in 2023 but fall sharply to 2.5% in 2024, and both estimates were lowered by 0.1 percentage points from the September estimate.

Core inflation is expected to hold at 4% this year before easing to 2.5% next year and dropping to 2.2% in 2025.

The bank also revised higher jobless rates by 0.1 percentage points in 2023 and 2024.

The jobless rate is now estimated to increase to 7.6% next year from 7.3% this year.

  

Europe Indexes and Yields

The DAX index increased 0.3% to 16,701.74, the CAC-40 index inched up 0.01% to 7,569.97, and the FTSE 100 index increased 0.1% to 7,621.92.

The yield on 10-year German bonds increased to 2.02%; French bonds held at 2.54%; the UK gilts inched higher to 3.66%; and Italian bonds inched lower to 3.70%.

The euro traded higher to $1.094, the British pound inched higher to $1.269, and the U.S. dollar eased to 86.62 Swiss cents.

Brent crude decreased $0.36 to $77.59 a barrel, and the Dutch TTF natural gas decreased by €1.78 to €33.75 per MWh.

 

Europe Stock Movers

Sodexo SA decreased 0.4% to €98.38, and the catering and food service group confirmed its plan to seek shareholder approval for the spinoff of Pluxee at the meeting on January 30, 2024.

Covestro AG increased 1.9% to €54.0 on reports that the Abu Dhabi National Oil Company is looking to increase its takeover offer for the German chemical company.

Bayer AG added 0.4% to €32.24 after a U.S. jury ordered the company's unit, Monsanto, to pay $857 million for toxic leaks at a school.

The company said it plans to appeal the decision.

Banks were in focus after the European Central Bank raised the capital requirement for non-performing loans at 20 banks without naming any banks.

Deutsche Bank decreased 0.4% to €11.94, and Commerzbank fell 0.4% to €10.43.

Societe Generale declined 0.9% to €23.99, UniCredit SpA increased 0.5% to €24.24, BNP Paribas fell 0.2% to €62.27, and Banco Santander eased 0.4% to €3.77.