Take Europe’s three biggest economies and list them in order of the likelihood of being in recession in the second half of 2018. Chances are Brexit-bound Britain would come first followed by France after its gilets jaunes protests. Germany would come last.
In fact, it is the eurozone’s locomotive economy that is at biggest risk of fulfilling the technical definition of recession – two consecutive quarters of falling output. After contracting by 0.2% in the third quarter, the latest news from Germany suggests it may have struggled to grow in the fourth quarter as well.
News that German industrial production fell by 1.9% in November came as a nasty shock. The stock response to the contraction in the third quarter was that it was due to the tightening up of European vehicle emission standards which led to one-off problems for its carmakers that would quickly be overcome.
While the bounce-back has been delayed rather than cancelled, Europe’s biggest economy faces significant headwinds. The growth spurt generated by monetary stimulus from the European Central Bank has run its course.
The European commission’s economic sentiment indicator fell in every single month of 2018 and in December declines in all four of the eurozone’s big four economies – Germany, France, Italy and Spain. As Andrew Kenningham of Capital Economics noted, the weakness cannot be put down to country-specific issues such as the gilets jaunes in France or sector-specific issues such as the disruption of the automotive sector.
To make matters worse for Germany, the global economy is also slowing, making it harder for companies to pick up new export orders. Protectionism is not helping either. Donald Trump sees China as his No1 trade target, but Germany – with its colossal current account surplus – comes a close second.
All of which brings a slightly different perspective to Britain’s debate about Brexit, which currently seems to be based on three key propositions: that continental Europe is thriving; that Europe’s politicians will come under no pressure to cut a deal from their big companies; and that Britain is well adrift at the bottom of Europe’s economic league table. All three are false.
It’s a familiar story. Price-conscious consumers sit at home and do their shopping remotely, making life increasingly tough for traditional bricks-and-mortar retailers. Black Friday and Cyber Monday promotions meant that in November online retail sales accounted for more than 20% of the market for the first time.
But while consumers are increasingly likely to buy a shirt or the latest Booker prizewinner online, they are less likely to have their groceries delivered. While it may seem that the roads are choked with supermarket delivery vans, only 6% of food sales are made online and market penetration has stalled. Online spending in late 2018 was up by almost 4% on the previous year but was entirely accounted for by existing rather than new customers.
There are some obvious explanations for this. People can have a book left behind the recycling bin but have to be there in person for their food shop. Many of us like to size up the fruit and veg in person for fear we will be palmed off with bruised apples or over-ripe bananas. Not everybody is willing to pay to have their groceries delivered.
But eventually, delivery slots will become shorter, policies for returned carrots will become as slick as they are for chinos, and consumers will realise that paying a fiver to avoid a schlep to the supermarkets is actually a good deal. Supermarkets are not immune from the online retail revolution. It will just take longer for food, that’s all.
