Daily Brief: Germany's Economy Might Be Shrinking, But Prices Are Only Getting Bigger And Bigger And Bigger...

Daily Brief: Germany's Economy Might Be Shrinking, But Prices Are Only Getting Bigger And Bigger And Bigger...

about 2 years ago3 mins

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Data out on Monday showed that the eurozone grew by less than expected last quarter, as the region’s biggest economy gets teenier by the day.

What does this mean?

France and Spain’s economies grew more than expected last quarter, but so dire was the situation in Germany – Europe’s biggest – that it didn’t count for much. The home of schnitzel schtruggled with schortages, and ultimately saw its manufacturing-dependent economy shrink 0.7% last quarter versus the one before – more than twice the drop economists were expecting. That dragged growth in the eurozone down to a paltry 0.3% compared to the quarter before. Not a great end to the year, but the year itself wasn’t so bad: the eurozone’s economy was 5.2% bigger in 2021 than 2020 – the region’s fastest growth since 1971.

Europe GDP
Source: Bloomberg

Why should I care?

Zooming in: Lifestyles of the thrifty and faceless.

The problem isn’t just shortages: data out on Monday showed that the prices Germans and Spaniards paid for goods and services rose by 5.1% and 6.1% respectively in January versus the same time last year. And since that’s yet another sign that inflation in Europe isn’t going anywhere fast, it arguably vindicates the International Monetary Fund’s decision last week to slash its annual growth forecast for the bloc.

German inflation

The bigger picture: Britain’s a step ahead.

Europe’s lackluster growth might be why – sky-high inflation or not – the European Central Bank (ECB) has so far refused to raise interest rates and risk hampering spending even more. And economists don’t think that’ll change anytime soon, predicting that the earliest the ECB might take action is in September next year, once it’s fully wound down its bond-buying program. That would put it two years behind the Bank of England, which is expected to raise rates for the second time when it meets later this week.

Keep reading for our next story...

Ryanair Reported Worse-Than-Expected Results

Ryanair image

Ryanair reported worse-than-expected results on Monday, but that won’t stop the company from putting the “budget” in “Europe’s biggest budget airline”.

What does this mean?

Tourists flocked back onto Ryanair’s planes last quarter, with October a particularly busy month for jetsetters and globetrotters. But vacations and coronavirus aren’t known for going hand in hand, and the arrival of Omicron brought both Europe-wide restrictions and a travel-shy customer. That might be why the airline posted a bigger-than-expected $107 million loss last quarter – twice as much as the one before. Ryanair reckons there could be more Covid flare-ups ahead too, and warned investors that it’ll be cutting prices this quarter to try to tempt as many passengers on board as possible. That wasn’t what they wanted to hear: they sent the company’s stock down after the announcement.

Ryanair results
Source: Ryanair

Why should I care?

Zooming in: Ryanair’s future is now.

Ryanair’s arguably in a much better position to cut fares than a lot of its rivals, not least because it’ll be saving a lot more on jet fuel than them. See, airlines often agree to the price of a certain amount of fuel ahead of time by buying futures contracts, which protects them from any spikes in the oil price. And since Ryanair has locked in more than 60% of its purchases for the next 15 months, it’s in a much cushier position than most.

The bigger picture: A Russian roadblock.

Case in point: the oil price is on track for its biggest January gain in at least 30 years. In fact, investment banks are predicting that the dusky earth-juice will soon be worth $100 a barrel, up from $91 now. And that’s without taking tensions between Ukraine and Russia into account, which could prompt the latter to cut off supplies into Europe and send the price even higher. Ryanair’s disgruntled investors, then, might soon snub its less forward-thinking rivals when they realize its cut-price ticket costs are by far the lesser of two evils.

Oil forecast
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