German economy stagnating despite signs of industrial rebound

‘Industrial production has probably not reached the trough,’ Germany’s economy ministry said on Monday. (AFP)
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Updated 16 December 2019

German economy stagnating despite signs of industrial rebound

  • Indicators at the start of the fourth quarter point to subdued private consumption even though disposable incomes continue to rise
  • Bundesbank says households’ real disposable income fell due to a slowdown in employment growth

BERLIN: The German economy is more or less stagnating, the economy ministry said on Monday, adding there are initial signs that an industrial recession could be coming to an end as orders stabilize.
The ministry also said in its monthly report that indicators at the start of the fourth quarter pointed to subdued private consumption even though disposable incomes continued to rise.
Consumption has helped keep Europe’s biggest economy humming by compensating for weak exports. Trade tensions this year pushed the German manufacturing sector into a recession but the overall economy narrowly escaped the same fate.
“Industrial production has probably not reached the trough,” the ministry said. “But orders and sales have stabilized at a low level. This suggests that industry has gradually stabilized and could pick up slightly in the New Year.”
There are fears that should the manufacturing sector continue to shrink; the slowdown could spread to an otherwise resilient services sector.
IHS Markit’s flash composite Purchasing Managers’ Index (PMI) for December on Monday confirmed the diverging trends: manufacturing activity slipped and services rose.
Markit said the rate of decline in new orders and exports was stabilizing, giving hope for the manufacturing sector.
The German central bank said last week that Germany faced another sluggish year despite a likely rebound in exports as households see their spending power shrink. The Bundesbank said households’ real disposable income fell due to a slowdown in employment growth.
It trimmed its growth forecast for this year to 0.5 percent and halved its prediction for 2020 to 0.6 percent.
In another grim sign for the economy, the BGA trade association said on Monday that wholesalers planned to cut investments and their tendency to hire new staff had decreased despite expectations that their nominal revenue will rise by 2.3 percent to €1.3 billion this year.


HSBC profit slump adds to bank sector coronavirus woes

Updated 04 August 2020

HSBC profit slump adds to bank sector coronavirus woes

  • London-based bank reports massive slump in net profit, plans to slash 35,000 jobs

LONDON: HSBC on Monday reported a 69-percent slump in net profit, joining a number of major banks whose earnings have been slammed by the coronavirus fallout.

HSBC announced earnings of $3.1 billion compared with almost $10 billion in the first 6 months of 2019, as spiraling China-US tensions also hurt the British-based but Asia-focused lender.

Alongside HSBC results, top French bank Societe Generale on Monday announced a second quarter loss of more than €1 billion as the pandemic forced it to set aside more provisions against bad loans. UK banks Barclays, Lloyds and NatWest all last week reported huge financial hits linked to the pandemic’s fallout.

But there have been some bright spots, with French bank BNP Paribas weathering the coronavirus storm in the second quarter with only a small dip in net profits thanks to a surge in investment banking.

Credit Suisse meanwhile saw net profit jump almost a quarter in the April-June period, also on investment banking gains.

HIGHLIGHT

$1 BILLION - Alongside HSBC results, top French bank Societe Generale on Monday announced a second-quarter loss of more than €1 billion as the pandemic forced it to set aside more provisions against bad loans.

“HSBC has done little to lift investors’ spirits as it brings the curtain down on what has been a costly half-year reporting season for banks in general,” noted Richard Hunter, head of markets at Interactive Investor.

Even though banks “are much better prepared for this economic onslaught than during the financial crisis of over a decade ago ... the immediate outlook is bleak,” he added.

HSBC said that its pre-tax profit slid 64 percent to $4.3 billion in the first half while revenue was down 9 percent at $26.7 billion.

The figures missed analyst forecasts and the bank also raised its estimate for 2020 loan losses to $13 billion from $8 billion.

CEO Noel Quinn described the first 6 months of the year as “some of the most challenging in living memory.” He added: “Our first-half performance was impacted by the COVID-19 pandemic, falling interest rates, increased geopolitical risk and heightened levels of market volatility.”

Even by the standards of the current economic maelstrom engulfing global banks, HSBC has had a torrid time.

Before the coronavirus crisis it was beset by disappointing profit growth, ground down by US-China trade war uncertainties and Britain’s departure from the European Union.

The London-headquartered bank embarked on a huge cost-cutting initiative at the start of the year, including plans to slash about 35,000 jobs as well as trimming fat from less profitable divisions, primarily in the United States and Europe.

The coronavirus upended some of that cost-cutting drive with banks hammered by market volatility and the economic slowdown caused by the pandemic.

But HSBC has a further headache — geopolitical tensions via its status as a major business conduit between China and the West.

HSBC makes 90 percent of its profit in Asia, with China and Hong Kong being the major drivers of growth.

As a result it has found itself more vulnerable than most to the crossfire caused by the increasingly bellicose relationship between Beijing and Washington.

The bank has tried to stay in Beijing’s good graces. It vocally backed a draconian national security law that Beijing imposed on Hong Kong in June to end a year of unrest and pro-democracy protests. The move sparked criticism in Washington and London but analysts saw it as an attempt to protect its access to China, which has a track record of punishing businesses that do not toe Beijing’s line.

But that has not shielded it from Beijing’s wrath. Quinn referenced the bank’s growing political vulnerability in Monday’s results statement.

“Current tensions between China and the US inevitably create challenging situations for an organization with HSBC’s footprint,” he said.

“However, the need for a bank capable of bridging the economies of East and West is acute, and we are well placed to fulfil this role,” he added.