Jobless drop, retail sales fall paint mixed picture of German economy

An employee works on a track of a MACK Rides rollercoaster at the production plant in Waldkirch near Freiburg, Germany.
Updated 30 September 2017

Jobless drop, retail sales fall paint mixed picture of German economy

BERLIN: Germany’s jobless rate fell to a new record low in September and the number of unemployed people fell far more than expected but retail sales disappointed, sending mixed signals about the state of Europe’s largest economy.
The unemployment rate dropped to 5.6 percent, the lowest level since reunification in 1990, after 5.7 percent in August, data on Friday from the Federal Labour Office showed. Economists polled by Reuters had expected it to hold steady.
The jobless total fell by 23,000 to 2.506 million in seasonally adjusted terms. That compared with the consensus forecast in a Reuters poll for a fall of 5,000 and was a steeper drop than that projected by even the most optimistic economist, who had expected a fall of 15,000.
“The economic cycle in Germany is moving toward its peak stage and that’s giving the labor market a further boost,” said Joerg Zeuner, chief economist at state development bank KfW.
An economic upturn in Europe has boosted exports and corporate investment, suggesting further rises in employment and noticeable wage rises — including beyond 2017, he said. But he added there were risks for the economy, with a further strong appreciation of the euro chief among them.
That could potentially hurt exporters in an economy traditionally propelled by exports but more recently driven by consumers who are benefiting from record employment, increased job security, rising real wages and ultra-low borrowing costs.
Other data published on Friday showed retail sales unexpectedly fell on the month in August and posted a smaller increase on the year than forecast, putting a slight dampener on hopes that a consumer-led upswing will continue at full steam.
The volatile indicator, which is often subject to revision, showed retail sales decreased by 0.4 percent on the month in real terms. That compared with the Reuters consensus forecast for a 0.5 percent rise and followed a 1.2 percent drop in July.
On the year, retail sales jumped by 2.8 percent, matching the previous month’s increase but undershooting a Reuters consensus forecast for an increase of 3.2 percent.
Adding to the mixed picture, a GfK survey published on Thursday showed the cheerful mood among German shoppers had clouded unexpectedly heading into October.
Nonetheless, the outlook for the economy remains bright overall. Institutes on Thursday hiked their growth forecasts to 1.9 percent this year and 2 percent next year, while also saying Germany would have record budget surpluses over the next two years.


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.