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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

GDP: US, France, Sweden and Spain all grow faster than Britain in last quarter – as it happened

Capitol Hill in Washington DC last night.
Capitol Hill in Washington DC last night. Photograph: Cliff Owen/AP

GDP: UK is being left behind.....

After a flurry of growth reports today, it’s becoming clear that Britain’s economy has underperformed its rivals in the last quarter.

Two days ago, we learned that the UK expanded by merely 0.3% in April-June, following a modest expansion of 0.2% in January-March.

Today’s data has shown that other advanced countries did rather better. Namely:

Ireland is likely to post impressive GDP figures, following the growth upgrades from its central bank today (details here). Canada is also enjoying a good quarter, judging by the surge in growth during June (details here).

Many of today’s GDP reports showed that trade made a positive contribution to growth in the last quarter; that’s a good sign for the global economy.

Britain, though, is being held back by rising inflation and concerns over Brexit.

Markus Kuger, senior economist at business services firm Dun & Bradstreet, says Britain is lagging behind other leading economies.

While growth in Q2 has recovered somewhat from its anaemic performance in the first three months of the year, there is still a high level of political and economic uncertainty. Based on our data and analysis, we are maintaining our ‘deteriorating’ risk outlook for the UK until there is more clarity on how Brexit and the fallout from the general election will impact businesses operating in the UK market.

“Our advice to businesses is to continue to monitor economic indicators and how Brexit negotiations develop over the coming months. Furthermore, we are maintaining our baseline scenario of a gradually slowing economy over the next two years. Leaving the EU will undoubtedly pose challenges, especially for companies whose supply chains involve sourcing from or selling to the continent. Although the weak pound is currently providing support for some sectors, such as manufacturing and tourism, it is far from certain that this stimulus will be enough to counterbalance the adverse Brexit effects over the medium to long term.”

Sky News’s political editor, Faisal Islam, reckons this slowdown is forcing the UK government to adjust its Brexit strategy:

And on that note, it’s time to stop for the day. Thanks for reading and commenting, and I hope you have a great weekend. GW

Updated

European stock markets have closed in the red tonight.

The FTSE 100 shed 74 points, or 1%, partly due to the slump in tobacco shares.

The French and German markets also suffered losses, amid worries that the strong euro will hurt profits.

European stock markets tonight
European stock markets, closing prices Photograph: Thomson Reuters

David Madden of CMC Markets says:

Investors in the UK market have a high threshold for being impressed by company earnings, but they are quick to punish you if the result doesn’t measure up. It is almost like dealers are looking for excuses not to go long the FTSE 100.

Stock markets in Continental Europe have been losing ground since between May and June, and indices like the DAX and CAC 40 can’t seem to shake off the bearish sentiment surrounding them. The strength of the euro is hindering eurozone equity benchmarks, and the market chatter that the European Central Bank will rein in their very aggressive bond buying scheme is also adding to their problems.

Wall Street is also down, hit by the healthcare vote debacle - and not helped by reports that North Korea has fired a missile which landed in Japanese waters.

Wall Street at noon today
Wall Street at noon today Photograph: Thomson Reuters

Looking back at GDP, Canada has blown past expectations by reporting 0.6% growth in May alone.

That suggests its growth during the second quarter will be strong.

Tobacco shares plunge as FDA tries to make smoking non-addictive

Back in the markets, shares into tobacco companies are tumbling after US authorities announced a new clampdown on the industry.

The Food and Drug Administration is planning to curb the number of deaths caused by tobacco. One of the ideas is to cut the amount of nicotine in combustible cigarettes to “non-addictive levels”.

The FDA’s goal is to save millions of lives, says FDA Commissioner Scott Gottlieb:

“The overwhelming amount of death and disease attributable to tobacco is caused by addiction to cigarettes – the only legal consumer product that, when used as intended, will kill half of all long-term users.

“Unless we change course, 5.6 million young people alive today will die prematurely later in life from tobacco use.”

City investors reacted swiftly to the plan, driving British American Tobacco’s shares down by over 10% (it makes Dunhill, Kent, Lucky Strike, Pall Mall and Rothmans).

Other major tobacco firms, including Imperial Brands and Philip Morris, are also sliding -- a sign that the FDA’s plan could have a profound effect on their businesses.

Lakka bay and village on Paxos island, Ionian Sea.
Lakka bay and village on Paxos island, Ionian Sea. Photograph: Alamy Stock Photo

Back in Greece, Hollywood A-listers are giving the economy’s tourist sector a boost.

A steady stream of celebrities are cropping up among the record 30 million choosing the country for holidays this summer.

After Australian star Hugh Jakeman spending time on the Cycladic isle of Antiparos (where Tom Hanks regularly summers and has a home), Angelina Jolie and Keanu Reeves have followed suite holidaying this week on the Ionian island of Paxos.

Jolie had promised to return to Greece when in her role as ambassador of the UN refugee agency she met prime minister Alexis Tsipras in Athens last year.

The record number of tourists are expected to help the debt-stricken country’s growth prospects following its return to markets on Monday.

But .....with visitor numbers growing the economic crime police have also been swooping on islands in a bid to crack down on tax evasion by stores and restaurants.

Greece’s independent public revenues body has announced it will undertake an urgent audit of a sample 2.500 hotels country-wide amid widespread speculation that, at the height of the tourist season, they are not declaring all overnight stays. Auditors have been ordered to cross-check declared income with tax remittances filed to the state.

Restaurants are also thought to be in the firing line as the leftist-led government seeks to crack down on big time tax evaders.

Well-known eateries on popular isles such as Mykonos and Paros are said to earn as much as one million euros a month which they fail to declare. At least some of the revenue, from catering for weddings and other socialite events, is never seen in Greece as it is deposited straight into UK bank accounts....

Oxford Economic’s Gregory Daco has tweeted some useful charts, showing how America’s growth rate picked up in the last quarter....

...and how consumer spending and exports helped drive the recovery.

Associated Press have a good take on today’s US growth report.

Here’s a flavour:

The U.S. economy revved up this spring after a weak start to the year, fuelled by a surge in consumer spending. But the growth spurt still fell short of the optimistic goals President Donald Trump hopes to achieve through tax cuts and regulatory relief.

The Commerce Department said Friday that growth in the gross domestic product, the economy’s total output of goods and services, expanded at a 2.6 percent annual rate in the April-June quarter. That’s more than double the revised 1.2 percent pace in the first quarter.

The improvement was powered in large part by robust consumer appetite for items such as clothing and furniture.

The 2.6% GDP gain came in close to economists’ expectations.

“Consumers continue to drive the economy’s growth, but firmer business investment is also a plus,” said Mark Zandi, chief economist at Moody’s Analytics. “Weaker housing construction was the only significant drag on growth in the quarter.”

Trump campaigned on a pledge to boost growth to rates of 4% or better. So far, his economic program has not advanced in Congress.

More here:

Another detail from today’s growth report:

Despite accelerating in the last quarter, America’s economy isn’t (yet) achieving the growth rates targeted by Donald Trump.

Nancy Curtin, chief investment officer at Close Brothers Asset Management, explains:

“The US economy has improved following a slow start to the year, in spite of a lack of fiscal stimulus so far from Trump’s presidency. A strong performance in export and industrial sectors has been buoyed by weaker dollar, and we’ve seen a steady increase in earnings too. We’re still some way from the President’s 3%+ growth target, but the good news is this wasn’t priced in by the market, so any additional tax relief or infrastructure spending could support markets into year end.

“Despite improving growth, wage inflation remains somewhat elusive, but the labour market remains reasonably strong, and we anticipate the Fed will proceed as planned with its slow and steady programme of interest rate normalisation.”

John Ross of the Renmin University of China shows how growth is close to its long-term average:

Andrew Hunter of Capital Economics says America’s economy is benefitting from consumer spending and business investment:

The 2.6% annualised gain in real GDP in the second quarter was driven by a rebound in real consumption growth, and suggests that GDP is still on track for growth of around 2.2% for 2017 as a whole. This should convince the Fed that, despite the recent weakness of core inflation, the real economy remains in good shape.

Real consumption increased by 2.8% annualised, up from 1.9% in the first quarter. Furthermore, business investment posted a healthy 5.2% annualised gain, although residential investment declined by nearly 7%. The weakness in the latter is unlikely to last. Meanwhile, after subtracting a massive 1.5% points from growth in the first quarter, inventories were a negligible drag in the second.

The annual revisions didn’t change much, with growth in the previous two quarters revised down slightly, and growth for 2016 as a whole nudged down to 1.5%, from 1.6%.

US GDP: Instant reaction

Heather Long of the Washington Post says the acceleration in US growth in the last quarter isn’t exceptional.

She points out that America’s economy usually accelerates in April-June....

Jason Furman, one of President Obama’s economy advisors, says the economy has grown at its trend level this year.

Patrick Chovanec of Silvercrest Asset Management is encouraged the businesses kept investing.

Updated

US companies helped the American economy grow in the last quarter, according to today’s GDP report.

Business spending on equipment rose by 8.2% in the last three months, the fastest since the third quarter of 2015.

Spending on mining exploration, wells and shafts more than doubled, while investment on nonresidential structures increased at a 4.9% pace.

Trade added 0.18 percentage point to growth, but investment on homebuilding shrank by 6.8%.

US growth rate hits 2.6% for Q2

Breaking: The US economy grew at an annualised rate of 2.6% in the second quarter of 2017, more than twice as fast as in Q1.

That’s the equivalent of 0.65% quarter-on-quarter growth; double Britain’s 0.3% growth rate,and quicker than France’s 0.5% growth too.

American GDP was driven by consumer spending, which grew by 2.8%.

Net trade also contributed to growth, with exports up 4.1% and imports up only 2.1%.

This is a significant acceleration compared to the first quarter, where growth has been revised down to 1.2% annualised growth (or 0.3% quarter-on-quarter).

But it’s very slightly below the consensus forecast, of 2.7% annualise growth.

More to follow....

It’s nearly time for the biggest event of the day - the first estimate of US GDP in the second quarter of the year.

Wall Street’s finest minds agree that the growth rate probably rebounded after slowing in Q1, although they don’t agree by how much....

These figures are all annualised, so divide by four to get the true quarterly growth rate....

The figures land at 1.30pm BST, or 8.30am in Washington....

The Economist Intelligence Unit have hailed Sweden’s eye-catchingly fast growth:

Greek PM: Growth is like getting our sovereignty back

A man reads a newspaper on July 26, 2017 in Athens.

Economic issues are also on the agenda in Greece today, where prime minister Alexis Tsipras has been hailing its return to growth earlier this year.

Helena Smith our correspondent in Athens, reports:

Addressing the second in a series of regional growth conferences in the central town of Lamia, the leftist leader declared that economic recovery was now the equivalent of thrice-bailed out Greece regaining its national sovereignty.

He told an audience of local business leaders, politicians and regional officials that:

“The goal of growth is connected to the very existence of our nation, our national sovereignty, the prosperity of our people, our children.”

Tsipras said that Greece is finally heading out of seven long dark years, after returning to the financial markets on Monday with its first bond sale since 2014. The government hopes to repeat that test run soon, as it prepared to exit its current €86bn bailout programme in August 2018.

The prime minister had made a similar pledge in an exclusive interview with the Guardian on Monday in which he described Greece’s regaining of economic sovereignty as a “priority.”

There’s another reason why stock markets are edgy today – Amazon.

The e-commerce giant missed earnings forecasts last night, sending its shares down 3% in after-hours trading.

Although Amazon’s sales beat expectations, profits were lower than expected as the company spent more on infrastructure like warehouses and data centres. It’s a reminder that Amazon’s strong growth, and its habit of expanding into ever-new areas, comes at a price....

This meant that Amazon founder Jeff Bezos lost the crown of being the world’s richest man, just a few hours after wrestling it from Bill Gates. I suspect his time will come again...

Ireland’s central bank has hiked its growth forecasts for this year, but warned that Brexit is a significant threat.

The Central Bank of Ireland now expects GDP to surge by 4.5% this year, up from the 3.5% it expected back in April. It also raised its 2018 growth forecasts to 3.6%, from 3.2%.

Central Bank Chief Economist Gabriel Fagan explained that Ireland is benefitting from Europe’s recovery:

“Revised projections for growth this year and in 2018 reflect both stronger momentum in the domestic economy and improved prospects for external demand, especially from our European trading partners,”

But.....

“As a small and open economy, Ireland continues to face economic risks externally. And despite there being little new information emerging to date, it is clear that the economic impact of Brexit on Ireland is set to be negative and material.

At home, we must continue to prudently monitor the risk of overheating.”

The full economic impact depends on exactly what form of Brexit Britain ends up with. If it exits the customs union and the single market, then robust border controls would probably be reinstalled between Northern Ireland and the Republic.

However, there are reports today that Dublin is pushing for border controls to be shifted to the coastline. That idea has already been attacked by Northern Ireland’s unionist politicians - including the DUP, who are propping up the UK government in Westminster...

Updated

European stock markets have responded to today’s solid growth reports by, er, falling to their lowest level in three months.

France’s CAC is the worst performer, down 1.4%, with Germany and the UK not too far behind.

This is partly due to the strength of the euro, which has rallied to a 2.5 year high this week.

European stock markets this morning
European stock markets this morning Photograph: Thomson Reuters

Traders are also nervous after watching the US Senate shoot down Donald Trump’s latest attack on Obamacare.

Mike van Dulken of Accendo Market explains:

“Equities are in the red mid-morning, sentiment dented by fresh dollar weakness as even a ‘skinny’ US healthcare repeal bill fails in the Senate, delivering more unwelcome pound and euro strength.

Eurozone economic sentiment hits 10-year high

Breaking! Economic confidence across the eurozone has inched up to its highest level in a decade.

It’s the latest in a stream of upbeat data, which underline how Europe is putting its debt crisis behind it.

The European Commission’s economic sentiment index, just released, has hit 111.2 for July, up from 111.1 in June. That’s the highest level since the financial crisis began a decade ago.

European economic confidence
European economic confidence Photograph: European Commission

Construction firms and service sector companies reported the biggest improvement in sentiment, while consumer confidence dipped.

Dennis de Jong, managing director at UFX.com, says:

“While the UK wrestles with its lowest levels of consumer confidence since the Brexit vote, things are far rosier on the continent. The latest reading suggests that spending is at healthy levels in the eurozone despite the heightened political and economic uncertainty.

“With the first quarter of the year proving to be a challenge for the eurozone following UK and French general elections, spirits haven’t been dampened in the aftermath and consumers refuse to be unfazed by tricky economic conditions.

“With steady employment figures continuing to have a positive bearing on consumer confidence and showing no signs of letting up, Michel Barnier will feel he holds the chips while looking across the table at David Davis, as Brexit talks rumble on.”

Euro back over $1.17

Today’s eurozone growth figures have helped to push the euro a little higher against the US dollar.

The euro is back over $1.17 this morning, a gain of 0.2%.

The dollar, though, is also suffering from Donald Trump’s latest failure to dismantle Obamacare.

After a dramatic late-night vote, the so-called “skinny repeal’ bill was rejected by the Senate, by 51 votes to 49. Crucially, veteran lawmaker John McCain was one of three Republicans to vote against the measure, which would have left millions more Americans without healthcare cover.

This makes it even less likely that Trump can achieve a major infrastructure spending programme, or tax reforms (cuts).

Kit Juckes of Societe General explains:

The man of the moment this morning is John McCain who voted no and so the Senate failed to repeal Obamacare by a single vote.

Another hurdle for President Trump’s healthcare reform, another hurdle backing the funds for tax reform, another hurdle in the way of higher Treasury yields and a so nothing good for the dollar in that announcement.

Update: Although McCain’s vote was both dramatic and decisive, Republican senators Susan Collins and Lisa Murkowski have led the battle against Trump’s healthcare plans. More here:

Updated

Silvia Walter of Swiss Life Asset Managers is impressed by Spain’s recovery:

Sweden’s growth rate is “crazy strong”, says Torbjörn Isaksson of Nordea Markets.

He reckons the Swedish economy continues to perform very well, mainly due to strong domestic demand.

Isaksson adds:

GDP rose by a full 1.7% q/q and as much as 4.0% y/y. Our call was 1.1% q/q while the Riksbank’s forecast was 0.7% q/q. Moreover, the first quarter was revised upwards by 0.2% points to 0.6% q/q.

The main surprises are fixed investments and inventories. Residential construction continues to be a very important growth driver (scary!), but also other investments seem to have picked up and more than forecast. Inventories weighed on growth but much less than we had in mind.

Updated

Wowzers! Sweden’s economy grew by a blistering 1.7% in the last quarter.

That smashes analyst forecasts of 1% growth, and means Sweden’s economy has expanded by an impressive 4% over the last year.

Sweden appears to be benefitting from its current loose monetary policy - interest rates are negative, to encourage banks to lend.....

Austria’s economy grew by 0.8% in the last quarter, thanks to a boost in trade.

New figures show that exports jumped by 2.4% in April to June, up from 2.0% in January to March.

Spain’s economy has finally reached its pre-crisis peak, thanks to the 0.9% growth recorded in the last quarter.

That’s an important moment, but it has come at a cost. As El Pais points out, Spain still employs 1.9 million fewer people than in 2008.

Updated

Spain posts 0.9% growth

Newsflash: Spain has recorded another strong quarter of growth, beating both the UK and France.

Spanish GDP rose by 0.9% in the last three months, new figures from statistics body INE show.

That’s three times as fast Britain managed during the quarter, and nearly double France’s growth rate.

That’s up from 0.8% in the first quarter of 2017, and means Spain’s economy has now grown for 15 quarters in a row (or nearly four years).

Spanish GDP
Spanish GDP Photograph: INE

On an annual basis, Spanish GDP grew by 3.1%.

More to follow....

Updated

Ouch. Shares in BT have fallen by 1.7% at the start of trading after posting a 40% drop in profits.

My colleague Mark Sweney explains why....

BT’s profits slumped more than 40% in the first quarter of its new financial year after it was forced to pay out £225m to two shareholders following the accounting scandal at its Italian operation.

Deutsche Telekom and Orange became shareholders in BT after the company struck a £12.5bn cash and shares deal to buy mobile company EE in 2015.

As part of that deal the two companies were issued a warranty as a protection against a slump in BT’s performance.

DT and Orange triggered a claim under the warranty after BT’s stock market value plunged by almost £8bn, after the company revealed the extent of a £530m accounting scandal at its Italian operation. BT’s share price remains more than 20% lower that it was a year ago.

The news that France’s economy grew by a healthy 0.5% last quarter should reassure investors, says Naeem Aslam of Think Markets:

Over in Europe, the French GDP data brought more light for the Eurozone’s economy. The problem child of the Eurozone is no longer a problem child, in fact, it has grown up and living up to the expectations.

Updated

Bloomberg journalist Mark Deen reckons the French economy has entered a purple patch:

Over in the City, Barclays has told shareholders its setting aside another £700m to cover the cost of the PPI scandal (in which customers were sold insurance they didn’t need, or ask for).

Barclays has also posted a net loss of £1.2bn for the last six months, having losing £2.2bn through the sale of its Africa business. More on that shortly....

Updated

IHS: France looks healthy, but there are risks....

Diego Iscaro, senior principal economist at IHS Global Insight, thinks France’s economy is in decent shape.

Here’s his take on today’s GDP figures:

  • France’s GDP rose by 0.5% q/q during the second quarter of 2017, according to seasonally-adjusted figures released by the INSEE. The economy had grown by the same magnitude during the first three months of the year.
  • Net foreign trade was the main driver of growth during the second quarter, adding 0.8 percentage point to the total change in demand, as exports rebounded strongly. Domestic demand, excluding stocks, also made a positive contribution. Internal demand was boosted by a new increase in investment spending (although it decelerated compared to the first quarter) and a modest acceleration in private consumption.
  • The figures show France’s economy posting solid growth during the second quarter and support our view that GDP is likely to grow by around 1.6% in 2017. This would be the strongest performance in six years.
  • We expect growth to remain healthy during the second half of the year, boosted by gradually improving labour market situation, muted inflation and solid external demand. Confidence indices suggest that firms and households are also more upbeat about the economic outlook, which should also help to support domestic demand.
  • Investment spending should also be supported by favourable credit conditions and improving demand levels during the second half of 2017.
  • The French economic recovery seems to be well stablished, but there are still risks on the horizon. Although hopes for the implementation of reforms – particularly on the fiscal and labour market fronts – are high, the risk of the government not delivering as expected is not negligible, despite its large majority in the National Assembly.

Updated

French GDP: Snap reaction

Today’s growth figures should cheer France’s new leader, says Mehreen Khan of the FT.

She writes:

The official figures will be a boon for president Macron who has vowed to overhaul the French economy after years of lagging behind its major eurozone rival, Germany.

Unemployment in France is now at its lowest since the eurozone crisis, inflation has been tamed, and business surveys are revealing the best confidence levels in a decade.

Claus Vistesen of Pantheon Economics agrees that France did well in the last quarter....

Bloomberg’s Fergal O’Brien flags up that France’s economy has now grown for a year.

This chart shows how net trade boosted French growth in the last quarter.

French GDP: the details
French GDP: the details Photograph: INSEE

French GDP rises by 0.5%

Breaking: France’s economy grew by 0.5% in the second quarter of 2017.

That matches economists’ forecasts, and outpaces Britain’s 0.3% growth in the last three months.

It means that France’s economy has now grown steadily for the last year, and by 0.5% per quarter for the last nine months. That’s a pretty solid performance.

The French economy was helped by a surge in exports - they rose by 3.1% in April to June, while imports only rose by 0.2%.

Consumer spending rose too, to 0.3% from 0.1% in Q1.

However, business investment slowed to 0.5% from 2.1% in January to March.

On an annual basis, French GDP grew by 1.8% - again, slightly faster than Britain’s 1.7% year-on-year growth.

More to follow....

Updated

The agenda: French and US growth figures

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

We get two key pieces of economic data this morning - new growth figures from France and America.

Together, they’ll help us to see how the global economy performed in the second quarter of this year. Economists expect that both countries grew fairly solidly, with French GDP tipped to rise by 0.5% and America’s by around 0.7% (or 2.7% on an annualised basis).

We also find out how Canada’s economy performed in May.

Update: Spanish growth figures are also coming this morning.

It’s also another busy morning for financial news. Barclays bank, telecoms group BT, airline operator IAG and online estate agent Rightmove are among those reporting results.

The agenda:

  • 6.30am BST: French GDP for the second quarter of 2017
  • 8am BST: Spanish GDP for the second quarter of 2017
  • 10am BST: Eurozone consumer confidence
  • 1pm BST: German inflation for July
  • 1.30pm BST: US GDP for the second quarter of 2017
  • 1.30pm BST: Canadian GDP for May

Updated

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