The energy crisis caused by Russia’s invasion of Ukraine, coupled with high inflation and rising interest rates, has raised concerns about an economic downturn in the eurozone this winter. But Toni Ruiz, chief executive of Spanish fashion retailer Mango, said sales were proving the pessimists wrong.
“After months, years of Covid, people wanted nice, elegant outfits,” Ruiz told the Financial Times. “People were tired of basic clothes. So what we have seen is an enormous take-off.”
Across the region, sentiment recovered. Low unemployment, greater fiscal support from governments, a drop in energy prices from their peak in August and a mild fall that helped keep gas storage facilities filled near capacity over the summer have all improved the outlook.
António Simões, head of Europe business at Spain’s biggest lender Santander, told a conference this week: “I’m worried like everyone else, but more about a glass-half-full view.”
Even in Germany, where manufacturers have been hit hard by rising energy costs caused by reduced supplies from Russia, there are signs of a more cautious more upbeat mood among businesses.
“Production in most industrial and service sectors held up very well despite the energy price shock,” said Klaus Deutsch, head of research, economic and industrial policy at Germany’s BDI business association. “There is a huge backlog of orders, so there is still work to be done, even if demand falls.”
The BDI told the Financial Times it was “too gloomy” and was likely to raise its forecast in January from September for the German economy to grow by 0.9 percent this year. The Ifo institute’s index of German business confidence jumped from 84.5 in October to 86.3 in November, while the Munich-based think tank also found three-quarters of companies that use gas in production cut their consumption without cutting output reduce.
Most economists still expect the eurozone to slide into a mild recession – defined as two consecutive quarters of falling output – and central bankers are warning they will have to raise borrowing costs again in December.
Still, after resilient third-quarter growth of 0.2 percent in the 19-nation bloc, there are signs that many may have overestimated the drag on consumer spending and industrial output from high inflation and underestimated the boost from the lifting of Covid-19 restrictions .
Retail spending rose 0.4 percent in the eurozone and the wider EU between August and September, while industrial production rose 0.9 percent in the same period, taking both measures further above pre-pandemic levels.
The EU’s monthly survey of companies and households, published on Tuesday, showed economic sentiment rose more than expected to a three-month high. Consumer confidence across the EU rose as people became more willing to make big purchases, while services companies expected higher demand and industrial groups became more optimistic about production expectations.
Members of Germany’s Dax index of blue-chip companies are on track to pay record dividends next spring, according to research published by business newspaper Handelsblatt on Tuesday.
The eurozone’s industrial powerhouse did not emerge unscathed from Russia’s invasion of Ukraine. Output fell in energy-intensive sectors particularly exposed to higher gas and power prices, such as chemicals, paper and glass. But these sectors account for only 4 percent of Germany’s economic output and many companies have been able to offset the blow with higher prices.
Although Mango’s raw material costs have fallen recently, Ruiz said he expects inflation to remain a problem for the fashion chain for another two or three years, noting that it has caused sharp increases in staffing, rent and electricity costs at its 1,700 stores. experienced in Europe.
An executive at one major German group warned that households still had not seen the full impact of the rise in energy costs. He noted that it will take until March 2023 for products manufactured in September, when energy costs were still near record highs, to be purchased by customers.
But even on inflation there was good news. Consumer price growth appeared to have peaked, with inflation falling from a record high of 10.6 percent in the year to October to 10 percent in November.
In France, concerns over energy prices, which were exacerbated during a fuel crisis in October when refinery workers went on strike, lifted slightly. Business leaders have become more optimistic about the outlook for the first time since July, according to a survey of more than 600 company heads published this week by CCI France, the country’s federation of chambers of commerce.
Healthy order books in the construction sector and across other industries, along with the easing of bottlenecks in some supply chains for components and falling raw material costs for inputs such as steel, fueled the turnaround, CCI France found.
Italy’s industrial trade association Confindustria said production and services remained good, although the construction sector had stalled. But some of the association’s gloom has simply been postponed until next year. a slowdown caused by “higher interest rates and lower liquidity due to higher utility bills” was likely for 2023.
Others agreed that the next winter would be tough. “We see signs of gradual improvement,” said Rolf Hellermann, head of finance at German publisher Bertelsmann. “[But] gas supply in Germany and building up storage may be more challenging [next year] than in 2022, given much lower inflows from Russia.”
Additional reporting by Patricia Nilsson, Sarah White and Silvia Sciorilli Borrelli
