German Economy Stalled In 2023, Eurozone Industrial Activities Shrank Third Consecutive Month

Bridgette Randall
15 Jan, 2024
Frankfurt

European markets were on the defensive in Monday's trading, and investors reviewed the economic data from Germany and the eurozone.

Benchmark indexes in Frankfurt, Paris, and London declined about 0.3% after Germany's economy contracted in 2023 and wholesale prices fell at a slower pace in December.

Market indexes in Europe are expected to trade in a tight range, and the financial markets are closed on Martin Luther King Day.

In Asia, the Nikkei extended gains by 0.9% to 35,901.79, and the benchmark indexes traded at a new 34-year high on the expectation that the Bank of Japan is not likely to end its ultra-loose monetary policy soon.

Market indexes in Hong Kong and the mainland China declined after the People's Bank of China held its one-year medium-term loan rate at 2.5%, dashing hopes of an unexpected rate cut.

Markets in India inched higher into record territory after investors reacted to positive earnings from domestic corporations, and retail inflation stayed within the range preferred by the Reserve Bank of India.

 

German Economy Stalled In 2023

The German economy adjusted for inflation and fell by 0.3% in 2023, following a revised 1.8% expansion in 2022, the Federal Statistics Office, or Destatis, reported Monday.

The largest economy in the region faced multiple headwinds as consumers and businesses battled high inflation and rising interest rates, and weak external demand kept export activity growth in check.

Industrial output declined 2%, largely because of weaker production in the energy supply sector; manufacturing output fell 0.4% due to the ongoing weakness in vehicle manufacturing; and construction activities rose 0.2% despite high building costs and elevated interest rates.

Germany's economy at the end of 2023 was larger by 0.7% from its level in 2019, the year before the onset of the pandemic, when the economy plunged 3.8%.

Most service sectors expanded their economic activities in 2023, but economic growth slowed from the previous year.

On the demand side, private consumption adjusted for price declined 0.8%, investment fell 0.3%, and government spending dropped 1.7%, the first decline in 20 years after the government withdrew medical care provided during the coronavirus pandemic era between 2000 and 2022.

 

German Wholesale Prices Decline Extended to Ninth Month

Germany's wholesale price declined 2.6% from a year ago in December, Destatis said in a separate report released Monday.

The wholesale price declined, slowed from 3.6% in the previous month, and fell for the ninth month in a row.

On a monthly basis, prices fell 0.3% in December after falling at a 0.2% monthly rate in November.

 

Eurozone Activities Contracted Third Consecutive Month in November

Elsewhere in the region, eurozone industrial activities declined by 0.3% in November, Eurostat reported Monday.

Industrial activities declined for the third month in a row after durable consumer goods output declined at a faster pace of 2.0% compared to 1.0% in October.

The production of non-durable consumer goods output rose 1.2%, matching the same pace in October.

The industrial activities shrank by 6.8% from a year ago and extended the contraction for the ninth month in a row.

 

Europe Indexes and Yields

The DAX index decreased 0.3% to 16,660.10, the CAC-40 index fell 0.3% to 7,445.31, and the FTSE 100 index inched lower by 0.3% to 7,602.75.

The yield on 10-year German bonds edged up to 2.18%; French bonds inched higher to 2.71%; the UK gilts held steady at 3.80%; and Italian bonds increased to 3.78%.

The euro edged lower to $1.093, the British pound inched lower to $1.271, and the U.S. dollar eased to 85.44 Swiss cents.

Brent crude advanced $0.53 to $77.75 a barrel, and the Dutch TTF natural gas increased by €1.45 to €30.55 per MWh.