Microsoft ruling: what the experts say
Danni Hewson, head of financial analysis at AJ Bell, says:
“Investors will know that getting the thumbs up from EU regulators is still a very long way from Microsoft getting the global green light to go ahead with its deal to take over games developer Activision.
“The UK competitions watchdog has already held up a red card and in the US, regulators are heading to court after filing a lawsuit to block the deal.
“But the European Commission says it’s satisfied with the measures Microsoft has put in place. This feels slightly uncomfortable for the UK after comments from Microsoft president Brad Smith that Europe was a better place to start a business.
“Why the difference in stance, and will the CMA’s ruling hold up in court which is where this dispute is expected to end up?
There’s a huge amount of money on the table and a big question about what the future of gaming will look like.”
Alex Haffner, competition partner at law firm Fladgate, says there is clearly a lot to play for:
“The European Commission’s decision leaves clear blue water between it and the UK CMA in their assessment of whether competitive concerns as to the future of the cloud gaming market could properly be dealt with through (behavioural) commitments offered by the parties.
Whereas the Commission felt these commitments, essentially a form of open licensing allowing gamers to stream Activision games on the platform/device of their choice were “sufficiently comprehensive”, the CMA’s earlier decision described the same form of commitments as too static and unable to account for changes in the market over time.
Critics of the CMA’s stance, of which there have been many, will inevitably seize on today’s decision as proving the point made that the UK’s regulatory regime is too rigid and stifles innovation. Microsoft and Activision’s lawyers will also use the decision to provide greater ballast to their appeal of the CMA’s decision which is in the works.
What is now at stake, however, is not just any perceived differences in the UK and EU regulatory regimes, but more fundamentally whether the power wielded by big tech needs to be dealt with through structural rather than behavioural means. It is worth remembering also that the US Federal Trade Commission has yet to reach its final decision in connection with the same merger and many have suggested they too are gunning for Big Tech.
Professor Suzanne Rab, competition and EU law barrister at Serle Court chambers, predicts that Europe’s decision is unlikely to stop the CMA’s current hawkish enforcement stance in merger control which shows it is prepared to tread its own path.
“Whether the UK decision will scupper the whole deal remains to be seen as an appeal is understood to be underway. However, the parties and their advisers will no doubt be taking a long hard look at the global implications of different approaches of the merger authorities to a deal with global and complex impacts.”
CMA: We stand by our decision on MS-Activision deal
A late newsflash: the head of the Competition and Markets Authority says the UK watchdog stands by its decision to block the $69bn Microsoft-Activision deal, even though European regulators have ruled the other way today.
Sarah Cardell, chief executive of the CMA, says its experts considered, and rejected, MS’s remediation proposal:
“The UK, US and European competition authorities are unanimous that this merger would harm competition in cloud gaming. The CMA concluded that cloud gaming needs to continue as a free, competitive market to drive innovation and choice in this rapidly evolving sector.
“Microsoft’s proposals, accepted by the European Commission today, would allow Microsoft to set the terms and conditions for this market for the next ten years. They would replace a free, open and competitive market with one subject to ongoing regulation of the games Microsoft sells, the platforms to which it sells them, and the conditions of sale. This is one of the reasons the CMA’s independent panel group rejected Microsoft’s proposals and prevented this deal.
“While we recognise and respect that the European Commission is entitled to take a different view, the CMA stands by its decision.”
Closing post
Time to wrap up… here are today’s main stories:
EU approves Microsoft's $69bn acquisition of Activision Blizzard
Newsflash: the European Commission has cleared the acquisition of Activision Blizzard by Microsoft, just three weeks after the UK blocked the deal.
Following an in-depth investigation, the EC has concluded that Microsoft would not be able to harm rival consoles and rival multi-game subscription services, if it took control of the Call of Duty computer game maker.
The Commission argues that Microsoft would have no incentive to refuse to distribute Activision’s games to Sony, the leading distributor of console games worldwide.
Instead, they say, Microsoft would have strong incentives to continue distributing Activision’s games via a device as popular as Sony’s PlayStation.
However, the EC has concluded that the $68.7bn acquisition would harm competition in the distribution of PC and console games via cloud game streaming services.
They say:
… if Microsoft made Activision’s games exclusive to its own cloud game streaming service, Game Pass Ultimate, and withheld them from rival cloud game streaming providers, it would reduce competition in the distribution of games via cloud game streaming.
In response, Microsoft is offering two commitments, which the EC say are a “significant improvement for cloud game streaming”.
They are:
A free license to consumers in the EEA that would allow them to stream, via any cloud game streaming services of their choice, all current and future Activision Blizzard PC and console games for which they have a license.
A corresponding free license to cloud game streaming service providers to allow EEA-based gamers to stream any Activision Blizzard’s PC and console games.
#EUMergerControl Commission 🇪🇺 clears acquisition of Activision Blizzard 🎮by Microsoft, subject to conditions 👇
— EU Competition (@EU_Competition) May 15, 2023
🔗➡️https://t.co/qG3D0jNfPo pic.twitter.com/Q3P2miYisH
Announcing the decision, the Commission says:
Taking into consideration the feedback of the market, the Commission concluded that the proposed acquisition, as modified by the commitments, would no longer raise competition concerns and would ultimately unlock significant benefits for competition and consumers.
The Commission’s decision is conditional upon full compliance with the commitments. Under supervision of the Commission, an independent trustee will be in charge of monitoring their implementation.
Updated
Wembley wasn’t the only place to see an exciting penalty shootout last weekend.
A popular charity football match between PR executives and journalists yesterday, at AFC Wimbledon’s Plough Lane, went to spot kicks, with the hacks triumphing over the flacks.
It was the first time the grudge match has taken place since Covid, and it raised more than £10,000 for AFC Wimbledon Foundation, which helps the elderly and children in some of the most economically challenged areas of the UK.
The journos took a 2-0 lead, with the second goal created from a (doubless brilliant) cross by my colleague Richard Partington, before the match ended 2-2.
This set up a thrilling penalty shoot out which the Hacks won 9-8 (no word of any panenkas, though…..)
What a day. I’ve done my leg, but great to get the 2-2 draw after full time (don’t mention the penalties)! Thanks to all who organised it.
— stu jackson (@flackhackjack) May 14, 2023
Guy Hands loses bid to stop UK unwinding £8bn military homes deal
The UK government has won the right to take back control over thousands of military homes worth £8bn after a court ruled that the previous privatisation was a “bad deal” for the government, in a major blow to private equity investor Guy Hands.
London’s high court ruled on Monday that the Ministry of Defence (MoD) has the right to buy back the remaining 38,000 homes, which were bought in 1996 by Annington, a group of companies ultimately controlled by Hands, for £1.7bn.
Annington immediately said it planned to appeal the decision.
MPs on parliament’s public accounts committee later described the sell-off as “disastrous for taxpayers” because it did not include clauses to give it a share of future price rises for the properties. The government missed out on as much as £4.2bn as the value of the 57,400 homes rose, the MPs said.
However, the MoD remained a leaseholder paying rents to Annington. Government lawyers advised that ministers had the right to enfranchisement, the ability to buy the freehold of leased properties. Annington had argued that the government should not have that right, and that the state was exercising its powers improperly.
Mr Justice Holgate found that there was no way to say the government’s “motive was improper” in wanting to take back the properties, as the defence secretary was “entitled to make legitimate use of such bargaining power as he has”. He wrote:
“The arrangements were and still remain a bad deal for the MoD, its [service family accommodation] estate and the public purse”.
An Annington spokesperson said:
“We are surprised and disappointed by the outcome. It risks setting a dangerous precedent for businesses and international investors in the UK and if upheld would mean that the government can disregard long-term contracts if it believes it is in its interests to do so. As we consider this to be a matter of significant public importance, we will appeal this decision.”
If the appeal were unsuccessful, the victory in the test case would allow the government to take back control of the whole estate. If it proceeds, it will pay a price decided by a court.
A Ministry of Defence spokesperson said: “We welcome the decision of the high court, which finds that the MoD acted lawfully in seeking, successfully, to establish its right to enfranchisement.
“No decision has been taken on further enfranchisement cases, but we will consider the high court’s decision and the potential implications for securing better value for money for the taxpayer.”
The judgment showed that government officials had in 2021 advised ministers to move quickly to take back the properties to because “a scenario in which MoD waited for Guy Hands to crystallise a very significant profit, walk away, and then MoD decided to exercise its rights against the new owner [...] would be reputationally very damaging for MoD”.
Natasha Rees, a senior partner at Forsters, a law firm which represented the government, said:
“The high court has found that MoD does benefit from a right to enfranchise. MoD will now consider whether enfranchisement might achieve better value for money for the taxpayer. The case involved complex aspects of the law of enfranchisement, some of which had never been decided before.”
Manufacturing activity in the New York state region has slumped by the most in more than three years as orders and shipments fell abruptly.
The Federal Reserve Bank of New York’s general business conditions index dropped 42.6 points to minus 31.8 in May, data showed Monday.
Readings below zero indicate contraction and the gauge was weaker than all estimates in a Bloomberg survey of economists. More here.
A gauge of New York state manufacturing activity slumped in May by the most in more than three years as orders and shipments shrank abruptly https://t.co/Sinbq5Zq6f
— Bloomberg (@business) May 15, 2023
Motoring body the RAC has welcomed the CMA’s warning today about motoring retailers lifting their profit margins.
RAC fuel spokesman Simon Williams said:
“We are very pleased to hear that the Competition and Markets Authority has confirmed what we have been saying for a long time about the biggest retailers taking more margin per litre on fuel than they have in the past.
Currently, the average price of diesel is more than 20p a litre overpriced simply because they refuse to cut their prices. The wholesale price of diesel is actually 4p lower than petrol, yet across the country it is being sold for 9p a litre more – 154.31p compared to 144.95p for unleaded.
“Something badly needs to change to give drivers who depend on their vehicles every day a fair deal at the pumps. We hope even better news will be forthcoming later this summer.”
Ofcom launches investigation into Royal Mail’s delivery performance
From petrol and groceries…. to post.
Ofcom, the communication’s regulator, has launched an investigation into Royal Mail’s failure to meet its delivery targets for 2022/23.
Ofcom says that Royal Mail is meant to hit several targets, including:
delivering 93% of First Class mail within one working day of collection;
delivering 98.5% of Second Class mail within three working days of collection; and
completing 99.9% of delivery routes on each day that a delivery is required.
Royal Mail has missed those performance targets, by some distances, in 2022/23, Ofcom says, as it:
delivered 73.7% of First Class mail within one working day;
delivered 90.7% of Second Class mail within three working days; and
completed 89.35% of delivery routes for each day on which a delivery was required.
Back in March, MPs accused Royal Mail of “systemically” failing to deliver parts of its obligations.
Last Friday its parent company, International Distributions Services, announced Royal Mail’s CEO is stepping down, after an acrimonious tussle with unions.
Fee-fi-fo-fum, the @CMAgovUK smells profiteering by supermarkets.
— Joel Hills (@ITVJoel) May 15, 2023
Not in groceries but in the sale of petrol and diesel.
CMA investigation decides the “indications are that higher pump prices cannot be attributed solely to factors outside the control of the retailers.” pic.twitter.com/xgwA121tYa
Explaining today’s announcement’s, Sarah Cardell, chief executive of the CMA, says:
The rising cost of living is putting people and businesses under sustained financial pressure. The CMA is determined to do what it can to ensure competition helps contain these pressures as much as possible.
Our Road Fuel market study is nearly complete. Although much of the pressure on pump prices is down to global factors including Russia’s invasion of Ukraine, we have found evidence that suggests weakening retail competition is contributing to higher prices for drivers at the pumps. We are also concerned about the sustained higher margins on diesel compared to petrol we have seen this year.
We are not satisfied that all the supermarkets have been sufficiently forthcoming with the evidence they have provided in our Road Fuel market study, so we will be calling them in for formal interviews to get to the bottom of what is going on. It is a priority for the CMA to publish a full and final report, including recommendations for action, by the beginning of July.
Grocery and food shopping are essential purchases. We recognise that global factors are behind many of the grocery price increases, and we have seen no evidence at this stage of specific competition problems. But, given ongoing concerns about high prices, we are stepping up our work in the grocery sector to help ensure competition is working well and people can exercise choice with confidence.
Updated
Competition watchdog steps up work on grocery sector
The UK’s competition authorities are also stepping up its work investigating the grocery sector, amid concerns that supermarkets have been hiking prices unfairly.
The CMA says it has started work looking into unit pricing practices online and instore.
So far, it has not seen evidence of competition concerns, and points out that global factors – such as the Ukraine war – have also been the main driver of grocery price increases.
But, the CMA says, it is “important to be sure that weak competition is not adding to the problems”.
So it is now intentifying its work, and focusing on the areas where people are experiencing greatest cost of living pressures.
The watchdog will:
First, completing work to assess how competition is working overall in the grocery retail market, drawing on publicly available data and other information.
Second, in parallel, identifying which product categories, if any, might merit closer examination across the supply chain.
The announcement comes a day before prime minister Rishi Sunak hosts a summit at Downing Street to discuss the food crisis, with ministers, farmers and industry leaders.
CMA: Supermarkets have pumped up fuel profit margins
Britain’s competition watchdog has accused motor fuel retailers, such as supermarkets, of hiking their profit margins, at the expense of motorists.
In a new update on the cost of living crisis, the Competition and Markets Authority (CMA) warns that some “weakening of competion” in the road fuel retail market has driven up the prices paid by drivers at the pumps.
The CMA says that high pump prices cannot be solely blamed on global factors, such as Russia’s invasion of Ukraine.
The CMA says:
Evidence gathered by the CMA indicates that fuel margins have increased across the retail market, but in particular for supermarkets, over the past 4 years. As a result of these increasing margins, average 2022 supermarket pump prices appear to be around 5 pence per litre more expensive than they would have been had their average percentage margins remained at 2019 levels.
Although supermarkets still tend to be the cheapest retail suppliers of fuel, evidence from internal documents indicates that at least one supermarket has significantly increased its internal forward-looking margin targets over this period. Other supermarkets have recognised this change in approach and may have adjusted their pricing behaviour accordingly.
The CMA is also concerned that competition in the diesel market has weakened this year
While some degree of variation in diesel retail margin is to be expected given the high levels of volatility in diesel wholesale prices, the high margins in 2023 appear to have gone on longer than would be expected.
The CMA needs to understand whether weaker competition is part of the explanation for this.
Last month, the RAC accused forecourt owners of charging more than necessary for diesel:
The CMA also suggests that UK supermarkets have not provided evidence to the watchdog in a timely way, saying:
Whilst the level of engagement with the study has varied across supermarkets, we are not satisfied that they have all been sufficiently forthcoming with the evidence they have provided. In particular, important information has only been received late in the day and after several rounds of information gathering.
Given the concerns we have about a market of such importance to millions of drivers it is vital we get to the bottom of what is going on.
Fed's Bostic: We may need to go up on interest rates
In the US, Atlanta Federal Reserve president Raphael Bostic has dampened hopes that interest rates could be cut this year.
In an interview with CNBC, Bostic said he doesn’t foresee any rate cuts in 2023, even if there is a recession.
Bostic said:
“My baseline case is we won’t really be thinking about cutting until well into 2024.
“If you look at most measures of inflation, they’re still two times where our target is. And so that’s a long distance still to go.”
The coore personal consumption expenditures price index (excluding food and energy), the Fed’s preferred measure of underlying inflation, rose by 4.6% in the year to March, or more than double the Fed’s target of 2% inflation.
Bostic cautioned that he does not expect US inflation to fall as fast as market participants believe.
If anything “we may have to go up” on interest rates, Bostic suggested, adding:
“If there is going to be a bias to action, for me there would be a bias to increase a little further, as opposed to cut.”
Updated
Back in the City, shares in online fashion chain ASOS have hit their lowest level in 13 years, after several analysts downgraded their estimates for the company.
ASOS’s shares are down 16% at 424p, the lowest since February 2010.
The selloff came after JP Morgan cut its target price for ASOS to 610p, from £10.
Last week, ASOS reported a £291m pre-tax loss, and a 10% slump in UK sales in the six months to the end of February, much worse than expected.
The £291m pre-tax loss, against a £16m loss a year before, came after writing down more than £100m on unwanted stock as Asos focused on a narrow range of products and tried to update its fashions more quickly.
European factories had a surprisingly weak March, new data today suggests.
Eurozone industrial production shrank by 4.1% during March, reversing a 1.5% rise in February, and rather worse than the 2.5% fall expected.
ING’s Bert Colijn says most major economies posted “significant declines in production”, with output also pulled down by “a curious decline in Ireland”.
Colijn says:
The decline in March (following a 1.5% rise in February) brings industrial production back to the lowest reading since October 2021.
This is in large part related to a huge drop in the Irish “computer, electronics and optical products” industry, which saw production drop by more than 50% in March. This industry is generally volatile and therefore tends to overstate the trend.
Moody’s Analytics senior economist, Kamil Kovar, is hopeful that eurozone fatory output will soon jump, and says the ‘“grim” 4.1% drop in production paints a misleading picture.
This series showed a lot of volatility of late, and hence the decline is likely be reversed in next month.
Similarly, a more measured decline in car production this month is likely to be reversed in coming months. Overall, we expect large jump in industrial production next month, followed by moderate growth during spring months.”
Updated
Elon Musk meets Emmanuel Macron in Paris
Over in Paris, Elon Musk has held a meeting with French president Emmanuel Macron today, alongside a gathering of global business leaders.
Macron is hoping to win a record amount of foreign investment pledges at the annual Choose France summit in Versailles today.
The French president, who has faced weeks of protests over his push to raise the retirement age, is pushing his pro-business reform drive and also focusing on low carbon industries, such as electric vehicles.
The two men were to talk about the “attractiveness of France and its industries”, Macron’s office said.
AFP report that Musk smiled and waved at reporters as the meeting at the Elysee Palace got underway but made no comment.
Reuters has more details:
Billionaire entrepreneur Elon Musk, the CEO of Tesla, met Macron at his official residence the Elysee Palace. Sat opposite Macron in one of the French president’s gilded offices, Musk, clad in a black suit, joked that he had to “sleep in the car” in remarks caught on camera before their meeting.
Over lunch at Versailles later, French Finance Minister Bruno Le Maire will pitch to Musk new tax credits for investments in green technology that Macron made public last week, the finance ministry told Reuters.
Updated
The pound is nudging back towards its highest level in over a year today.
Sterling has gained half a cent against the US dollar this morning, at $1.2505, closer to the 12-month high of $1.2679 set last week.
The pound is benefiting from growing hopes that the UK economy will avoid recession, and expectations that UK interest rates will rise at least once more this year.
Matthew Ryan, head of market strategy at global financial services firm Ebury, says:
“The pound should remain well supported in the coming weeks. A cheap valuation and a relatively hawkish Bank of England should remain tailwinds, and sterling does not have the same positioning issues that the euro suffers from in the short-term.”
We also have promising signs that Europe’s inflationary squeeze is ebbing.
The wholesale prices charged by producers across Germany fell by 0.5% on a year-on-year basis in April, the first annual decrease since December 2020. They dropped by 0.4% on a monthly basis too.
Statistics body Destatis reports that the year-on-year decrease was mainly due to a 15.7% drop in mineral oil product prices.
Scrap and residual materials (-31,5 %), cereals, raw tobacco, seeds and feedstuff (-25.2%), ores, metals and semi-finished metal products (-20.5%) and chemical products (-5.4%) were also cheaper than a year ago.
But other prices continued to rise – including the wholesale cost of fruit, vegetables and potatoes, which was 22% higher than a year ago.
Building materials and elements (+13.9%) and living animals (+11.4%) also cost notably more than in April 2022.
Updated
In the UK property sector, the average monthly rent on a newly-let property outside London has risen past £1,000 for the first time, data from estate agents Hamptons shows.
While many renters in the capital will be used to handing over four figures a month on rent, this is a new milestone (or possibly millstone) for the rest of the country.
Bloomberg reports:
The average monthly rent on a newly let home outside of London surpassed £1,000 for the first time in April, according to a report from broker Hamptons International. That’s almost 8% higher than the same month last year, piling more pressure on tenants in the midst of a cost-of-living crisis.
“With rents on the open market rising quickly, tenants will face the choice of staying put or moving to a smaller home in a more affordable area,” said Aneisha Beveridge, head of research at Hamptons. “While anyone choosing to sit tight tends to face smaller rental increases than those moving home, they are not immune.”
Renters outside of London are paying over £1,000 a month for the first time https://t.co/2i6OSHCYgs via @_DamianShepherd pic.twitter.com/TEloUYQfwn
— Zoe Schneeweiss (@ZSchneeweiss) May 15, 2023
Full story: European economy expected to grow faster than forecast
Europe’s economy is expected to grow faster than previously thought this year and next, despite high inflation and rising interest rates, according to the European Commission.
The commission said the EU’s 27 members would grow at an average of 1% in 2023, up from a previous estimate of 0.8%. It nudged its forecast for growth in 2024 to 1.7% from 1.6%.
The eurozone’s 20 members are expected to grow by 1.1% on average and 1.6% next year, my colleague Phillip Inman writes.
By comparison, the UK economy is expected to be weaker, with growth of 0.25% expected this year and 0.75% in 2024, according to the Bank of England.
More here.
European financial markets have mainly pushed higher this morning, helped by optimism over the economic outlook.
In London the FTSE 100 has hit its highest level in almost a week, up 37 points or 0.5% at 7792 points. Mining companies and banks are among the risers.
France’s CAC has also gained 0.5%, while Germany’s DAX is 0.2% higher.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, says:
European indices have edged up on the open, with the FTSE 100 given a leg up after the dollar has strengthened, making the overseas earnings of multinational listings worth more.
The pound has fallen back to $1.24 against the dollar, although it has strengthened very slightly. Investors appear to have run back into the greenback’s safe-haven arms as sentiment has been knocked about global growth prospects.
This was not helped by a bleaker assessment of America’s prospects by consumers on Friday, as captured by the University of Michigan survey. Anxieties are colliding about the effect of high interest rates, combined with worries about the banking sector and now a potential US default as the debt ceiling deadline looms.
The whipsaw in sentiment may continue this week with the US retail sales snapshot due out tomorrow. Although a recovery may help ease some concerns about falling optimism, it could also increase expectations that the Fed might be forced to hike interest rates further.
FT: UK holiday resort Center Parcs up for sale
The Financial Times is reporting that UK holiday resort Center Parcs is up for sale.
The planned sale, by Canadian private equity group Brookfield, will test investors’ willingness to bet on the UK economy as it faces high inflation and rising interest rates, the FT says.
Brookfield are apparently seeking between £4bn and £5bn for Center Parcs, the family-focused holiday company which operates six villages in England and one in Ireland.
The FT says:
The decision to go ahead with the sale marks a bold move for Brookfield as the UK faces falling property values and higher interest rates. But a sale could potentially net a windfall for Brookfield, which acquired the resort group from Blackstone for about £2.4bn in 2015.
Brookfield has appointed investment bankers who have been sounding out potential buyers in the past week, the people said.
Brookfield and Center Parcs declined to comment.
Center Parcs runs site at Sherwood Forest in Nottinghamshire, Longleat Forest in Wiltshire, Elveden Forest in Suffolk, Woburn Forest in Bedfordshire and Whinfell Forest in Cumbria (where the red squirrels were on fine form at Easter, we can confirm), and Longford Forest in County Longford, Ireland.
Updated
Japanese stocks hit 18-month high
Back in the financial markets, Japan’s share index has hit its highest level in 18 months.
Investors have been seeking stocks with robust earnings, while the yen’s weakness is also boosted sentiment (as it makes exporters more competitive).
Victoria Scholar, head of investment at interactive investor, explains:
“The Nikkei has rallied to a fresh 18-month high, pushing above 29,600 with financials leading the gains.
Better-than-expected producer price data which rose the least in 20 months, as well as stronger Japanese earnings and improved share buybacks have supported its equity index. Plus, export stocks have benefitted from the yen’s weakness which hit a near record low against the Swiss franc over the weekend.
The Nikkei 225 is up 15% year-to-date, with gains accelerating lately, having rallied almost 4% over the past month.”
ले गइ गील...गुडिया जापान की...पागल मुजे कर दीया..
— Biren Vakil Paradigm (@Birenvakil) May 15, 2023
जापान..लव इन टोकयो..#topix monthly chart..Topix is just traded near 33 year high. Oracle of Omaha is bullish on Japan since few years is a widely known fact. Look a long term bull market. pic.twitter.com/jYOAnTQAMM
Updated
EC: Formidable efforts needed for Ukraine reconstruction
For the first time, the EC’s economic forecasts include a prediction for Ukraine (as it has been given candidate status for EU membership).
The report says that before the Russian invasion last year, Ukraine’s economic development had been held back by “a somewhat uneven implementation of structural reforms”.
It also suffered from regular interference from vested interests, plus “a high degree of corruption, chronically low levels of investment, and territorial disputes also linked to the 2014 illegal annexation of Crimea by Russia”.
The EC says Ukraine has demonstrated remarkable resilience during the war, and its efforts towards joining the EU, having been granted candidate country status on 23 June 2022, should improve its prospects.
But, GDP is estimated to have crumpled by over 29% last year in the war. Little recovery is expected this year, with growth of just 0.6% seen in 2023, rising to 4% in 2024.
The report adds that an “ambitious reform programme” is needed to align Ukraine with its path into the European Union, saying:
The outlook is, however, subject to extraordinary uncertainty and critically depends on the evolution of the war.
Formidable efforts will be needed to attract investment and launch a full-scale reconstruction, the cost of which has been recently estimated at $411bn by the World Bank’s Rapid Damage and Needs Assessement II.
Updated
Full story: Vice files for bankruptcy protection amid cut-price sale to consortium
Vice, the once high-flying media startup which reached a peak valuation of nearly $6bn (£5bn) has filed for bankruptcy protection in the US as the digital publisher engineers a cut-price sale to a group of lenders, my colleague Mark Sweney reports.
The company, whose assets include Vice News, Motherboard, Refinery29 and Vice TV, has agreed a sale to a consortium that includes Fortress Investment Group, Soros Fund Management and Monroe Capital for $225m in the form of a credit bid for its assets as well as assuming Vice’s “significant liabilities”.
Creditors can swap their secured debt, rather than pay cash, for the company’s assets. Vice said it “expects to emerge as a financially healthy and stronger company” when the process concludes.
More here:
EC: Core inflation has been firming....
The EC is also concerned that inflation is falling more slowly than hoped, which could trigger more interest rate increases.
Today’s Spring Forecasts warn that the resilience of the EU economy has also delayed the slowdown of inflation.
Although consumer prices inflation is expected to drop this year – to 5.8% from 8.4% – that’s higher than forecast in February.
The EC is concerned that core inflation (stripping out food and energy costs) has been ‘firming’, saying:
Falling energy commodity prices are driving a sharp fall in energy consumption bills and the overall rate of price growth from its October peak, but core inflation has been firming. As a result, markets have raised expectations about future policy rate hikes.
The small contraction of core inflation in April suggests that it has also peaked, but the convergence towards target is now expected to take longer. Greater persistence of core inflation would call on monetary authorities to act even more forcefully to stem inflationary pressures.
“We can and should be proud of the fact that the European economy is showing such remarkable resilience,” commissioner Paolo Gentolini concludes.
He says that succesful management of the energy crisis, coordination of fiscal policies, and Europe’s Recovery and Resilience Facility created to drive the recovery from Covid-19 all helped the economy do better.
But there is “no reason for complacency.”, with inflation still high, Gentolini tells reporters in Brussels, adding:
This means we must ensure that fiscal policy is consistent with our policy priorities. In the same vein, it is important to maintain the momentum in the implementation of the Recovery and Resilience Plans.
Updated
But.... risks are tilted to the downside
However….the balance of risks facing Europe’s economy has “tilted back to the downside” since February, the EC fears, despite lifting its forecasts today.
Commissioner Gentolini says there are several reasons why the downside risks have increased, warning:
Core price pressures could turn out more persistent if wages accelerate more than currently projected, and without adjustment in profit margins.
Higher-than-expected core inflation would lead to a stronger reaction of monetary policy, with broad macroeconomic ramifications for investment and consumption.
Risks related to the EU’s external environment remain elevated. New uncertainties following the banking sector turbulence, or related to wider geopolitical tensions, compound the long-standing concerns about the impact of rising interest rates on vulnerable emerging markets.
And of course, Russia’s war of aggression against Ukraine continues to cast a long shadow of uncertainty over the economy.
On the positive side, more benign developments in energy prices or a faster transmission of wholesale energy price declines to consumers would lead to a faster decline in headline inflation, with positive spillovers on domestic demand.
Updated
In the first quarter of this year, GDP grew by 0.3% in the EU, which is slightly above the projection in February’s Winter Forecast, commissioner Paolo Gentolini points out, adding:
Information available at this stage for only a few countries, points to subdued consumption growth and robust investment growth, despite tighter financing conditions.
Net exports contributed to growth thanks to the improvement in the terms of trade and a strong tourism performance.
For the second quarter, survey indicators suggest continued expansion, with services clearly outperforming the manufacturing sector. In particular, the energy-intensive manufacturing sectors are still reeling from the energy shock of last year. Consumer confidence has continued its recovery from last autumn’s historic low.
The EC has mixed news for workers today, in its new economic forecasts.
On the upside, the labour market remains strong. The eurozone jobless rate is expected to remain at 6.8% this year, as in 2022, and drop to 6.7% next year.
But on the downside, wage growth is set to fall short of inflation again this year – it may take until 2024 for a “significant recovery of real wages”.
Commissioner Paolo Gentolini tells reporters in Brussels:
The EU economy continues to be underpinned by the strongest labour market in decades. Unemployment rates keep hitting record lows. And the participation and employment rates stayed at record high.
Despite the expected slowdown in economic activity, the labour market is set to remain strong.
The European economy is in better shape than we projected last autumn.
— European Commission (@EU_Commission) May 15, 2023
It is holding up remarkably well in the face of Russia’s aggression against Ukraine, leading to an upgrade in today’s growth forecast for 2023.
Read the Spring #ECForecast ↓
Europe’s economy is benefitting from the decline in energy prices, commissioner Paolo Gentolini explains.
The fall in energy commodity prices has helped push up today’s growth forecasts.
Gentolini points out thaat Europe did not run out of gas last winter, as had been feared:
Wholesale prices of gas and electricity in the EU have come down significantly from the peaks of last year, and continued declining even after the winter forecast.
Thanks to effective diversification of supply and a sizeable fall in consumption – also supported by mild winter temperatures – the major concern for the European economy, that is a disruptive shortage of gas supply, did not materialise.
Gas prices reached €35 per Megawatt hour at the end of last week, the lowest level since summer 2021 (and much lower than last August, when it hit €343/MwH).
Gentolini adds:
Futures prices for 2023 and 2024 have declined as well. As the EU approaches the gas-refilling season, gas storages are at comfortable levels and risks of shortages have considerably abated.
Updated
Gentiloni: EU has avoided recession
European commissioner Paulo Gentiloni is holding a press conference to explain today’s new economic forecasts.
Gentiloni says the first important point is that the EU economy has avoided a recession.
He says:
It expanded in the first quarter and is set to continue growing moderately.
Second, the key factors underpinning this forecast go in opposite directions: on the one hand, declining energy prices and a resilient labour market and, on the other hand, tightening financial conditions.
Third, headline inflation is declining rapidly, but core inflation (headline inflation excluding more volatile energy and unprocessed food components) remains high.
Fourth, government deficit and debt ratios continue declining.
Fifth, the balance of risks has tilted back to the negative side.
Ireland is forecast to have the strongest GDP growth across the EU this year, at 5.5%.
Germany, once the powerhouse economy, is only expected to grow by 0.2%, with France tipped for a 0.7% expansion in today’s new forecasts.
Greece’s recovery continues, with growth of 2.4% expected this year. It’s the same story for Portugal, which also sought a bailout during the eurozone crisis a decade ago.
And it’s nul points for Sweden, whose economy is forecast to shrink by 0.5% this year – the worst in the region.
Growth forecast for 2023 (%):
— European Commission (@EU_Commission) May 15, 2023
🇮🇪 5.5
🇲🇹 3.9
🇷🇴 3.2
🇬🇷 2.4
🇵🇹 2.4
🇨🇾 2.3
🇪🇸 1.9
🇳🇱 1.8
🇸🇰 1.7
🇱🇺 1.6
🇭🇷 1.6
🇧🇬 1.5
🇱🇻 1.4
🇮🇹 1.2
🇧🇪 1.2
🇸🇮 1.2
🇪🇺 1.0
🇫🇷 0.7
🇵🇱 0.7
🇭🇺 0.5
🇱🇹 0.5
🇦🇹 0.4
🇩🇰 0.3
🇨🇿 0.2
🇩🇪 0.2
🇫🇮 0.2
🇪🇪 -0.4
🇸🇪 -0.5
Spring #ECForecast ↓ pic.twitter.com/nwgBY9GMkb
Updated
EC lifts growth and inflation forecasts
Newsflash: Europe’s economy is expected to grow faster than previously expected over this year and next, but inflation will be higher than hoped too.
The European Commission’s latest economic forecasts, just released, show that the economy “continues to show resilience in a challenging global context”.
It says:
The EU economy is managing the adjustment to the shocks unleashed by the pandemic and Russia’s aggression of Ukraine remarkably well.
Last year, the EU successfully managed to largely wean itself off Russian gas.
With fears of a recession easing, growth so far this year has been stronger than expected, they say.
The EC now expects eurozone GDP to rise by 1.1% this year, up from 0.9% forecast in February, rising to 1.6% in 2024 (revised up from 1.5%).
The wider EU economy is forecast to expand by 1.0% in 2023, an improvement on the 0.8% predict in its winter interim forecast three months ago. The recovery is expected to accelerate in 2024 with growth of 1.7% (revised up from 1.6%).
Good news for European households and businesses.
The Commission says:
The European economy has managed to contain the adverse impact of Russia’s war of aggression against Ukraine, weathering the energy crisis thanks to a rapid diversification of supply and a sizeable fall in gas consumption.
Markedly lower energy prices are working their way through the economy, reducing firms’ production costs.
Consumers are also seeing their energy bills fall, although private consumption is set to remain subdued as wage growth lags inflation.
However, inflation has also been revised upwards compared to the winter, on the back of “persisting core price pressures”.
Inflation is now expected to average 5.8% across the eurozone in 2023, and drop to 2.8% in 2024 – still above the European Central Bank’s target of 2%.
Previously, inflation was forecast to average 5.6% this year, and 2.5% in 2024.
In 2022, eurozone inflation averaged 8.4%, so these new forecasts only offer modest relief for consumers.
Updated
Turmoil in Turkish markets as election runoff looms
Turkish financial assets are being hit this morning after yesterday’s presidential election failed to deliver a winner.
The lira has weakened to 19.67 against the US dollar, as traders brace for a run-off between President Recep Tayyip Erdoğan and his opponent Kemal Kılıçdaroğlu.
Turkish Lira Extends Weakness in Post-Election Trade
— TRADING ECONOMICS (@tEconomics) May 15, 2023
The Turkish lira weakened to as low as 19.7 per dollar, hitting new record lows as traders reacted to the country’s presidential and parliamentary elections, with preli...
More here: https://t.co/AfjsC7X56Z pic.twitter.com/MwpVBh9YhE
The cost of insuring Turkish government debt against default has risen, while bond prices have fallen.
And trading on the Istanbul bourse had to be suspended, after the market fell over 6% in pre-market trading, triggering a circuit breaker.
My colleague Jon Henley explains:
As Turkey awaits the official results of a presidential election that looks almost certain to go to a second-round runoff, some international analysts believe Recep Tayyip Erdoğan has the wind in his sails.
His chief rival, Kemal Kılıçdaroğlu, underperformed compared with polling expectations: on Friday, two polls projected the united opposition candidate would clear the 50% hurdle needed to avoid a runoff.
Mujtaba Rahman, of Eurasia Group, says the election is Erdoğan’s to lose:
🇹🇷: All momentum now w Erdogan. Has taken Parliament, despite expectations to contrary. Has performed much better in 1st round of Presidential vote than polls predicted. Has incumbency advantages. For these & many other reasons a @kilicdarogluk win on 28 May is now very unlikely
— Mujtaba Rahman (@Mij_Europe) May 15, 2023
Our liveblog has all the latest developments:
Updated
Private equity group Apollo has been thwarted in its attempt to buy British oilfield services and engineering firm John Wood in a £1.7bn deal.
Apollo had until later this week to either submit a formal offer or walk away from talks following its exploratory bid at 240p per share, which was rebuffed by John Wood.
But both companies have told the City this morning that Apollo does not intend to make an offer.
John Wood says:
The board remains confident in Wood’s strategic direction and long-term prospects and believes that, following a transformative year in 2022, including new executive leadership and a new strategy, Wood is well placed to deliver substantial value for shareholders.
Shares have dropped by 35% in early trading, from 219p to 140p.
Updated
Vice: what the media say
Vice Media’s filing for bankruptcy protection punctuates “a relatively rapid decline for the media upstart”, says Bloomberg, adding:
The Brooklyn-based company listed both assets and liabilities in the range of more than $500m to as much as $1bn in a Chapter 11 petition filed in Southern District of New York. Fortress Credit Corp. ranked among the biggest secured creditors, with claims totaling about $475m.
The move caps a tumultuous few months for the firm. Vice shuttered its flagship TV news show and laid off more than 100 staff in late April.
The FT points out that Vice was once-feted, but is now proposing to sell its business to a consortium of its lenders:
The group, which is home to Vice News, Motherboard, Refinery29 and Vice TV, was once among the hottest new-media start-ups, winning a multibillion-dollar valuation based on its popularity with millennials attracted to an often anarchic style that reflected its roots as a punk magazine in Montreal.
However, the group has struggled to turn its mix of news, entertainment and lifestyle into lasting financial success, undermined by audiences’ shift back to more traditional media groups and the tightening grip of tech giants such as Facebook on digital advertising in recent years.
The New York Times (one of those ‘more traditional media groups’) dubs Vice a “decayed digital colossus”, adding:
Vice, which had wooed media giants, has struggled to adjust to the punishing realities of digital publishing. A group of creditors could buy Vice for $225m.
Updated
Vice files for Chapter 11 bankruptcy protection
Vice, the global news publisher and TV company that was once valued at nearly $6bn (£5bn), has filed for bankruptcy protection.
The company, whose assets include Vice News, Motherboard, Refinery29 and Vice TV, has announced it has applied for Chapter 11 in the US bankruptcy court for the southern district of New York.
Vice has also agreed a deal with a consortium of its lenders, including Fortress Investment Group, Soros Fund Management and Monroe Capital.
They have agreed to buy almost all Vice’s assets for $225m, and taken on some of its liabilities.
Vice says it:
Expects to Emerge As a Financially Healthy and Stronger Company in Two to Three Months.
The sale process is likely to take two to three months. Vice expects to be given permission to keep paying employees wages and benefits, and to keep paying vendors and suppliers.
Vice says its multiplatform media brands, including VICE, VICE News, VICE TV, VICE Studios, Pulse Films, Virtue, Refinery29 and i-D, will continue to operate.
Its international entities, and the VICE TV joint venture with A&E, are not part of the Chapter 11 filing.
Vice began as a punk magazine in Montreal almost three decades ago, before expanding into digital media and TV striking deals with companies including Sky and HBO.
The move into Chapter 11 follows sales talks with multiple companies in an attempt to avoid filing for bankruptcy, according to the New York Times earlier this month.
Bruce Dixon and Hozefa Lokhandwala, VICE’s co-CEOs, explain:
“This accelerated court-supervised sale process will strengthen the Company and position VICE for long-term growth, thereby safeguarding the kind of authentic journalism and content creation that makes VICE such a trusted brand for young people and such a valued partner to brands, agencies and platforms.
We will have new ownership, a simplified capital structure and the ability to operate without the legacy liabilities that have been burdening our business. We look forward to completing the sale process in the next two to three months and charting a healthy and successful next chapter at VICE.”
Updated
Shares in Curry’s have jumped almost 6% at the start of trading, after it lifted its profit guidance this morning.
They hit their highest level since early April, at 59.45p.
Introduction: UK tipped to avoid recession; Curry’s raises profit outlook
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Hopes that the UK will avoid recession this year are rising, after the economy performs better than expected so far this year.
Forecasters at the EY Item Club have predicted this morning that the UK will grow by 0.2%% during 2023, rather than contracting as previously forecast.
That improvement is due to falling inflation, lower-than-expected energy bills and a resilient jobs market, they say, with UK inflation expected to start falling sharply from its current double-digit levels.
Anna Anthony, UK financial services managing partner at EY, comments:
“We’re still on the path to economic recovery and many businesses and consumers – particularly the most vulnerable in society – continue to face significant cost-of-living pressures.
This cannot be underestimated, and appropriate support must still be provided, but we are in a more optimistic place than we were a few months ago.
The recession that many thought was inevitable is now likely to be avoided and energy prices have fallen, boosting consumer and business sentiment.
This improving economic outlook means EY now expects higher bank lending this year, and next.
Total UK bank loans to businesses and households are expected to rise 1.2% this year, upgraded from a 0.1% fall forecast in February, with further growth of 2.1% forecast for 2024.
Anthony says economic conditions expected to improve over the course of 2023 and into 2024:
“While encouraging, enthusiasm should be measured, in the short-term at least. UK banks continue to face a tough environment with historically low lending growth rates.
However, the sector is in a strong capital position and continues to provide ongoing support to customers, businesses and the wider economy.
On Friday, we learned that UK GDP grew by 0.1% in the first quarter of this year, a better outcome than feared a few months ago when high energy prices and the chaos of the mini-budget were hitting the economy.
The Bank of England has also upgraded its forecasts last week, six months after warning that the UK faced the longest recession in half a century. Now, though, GDP is expected to be 2.25 percentage points higher than previously forecast over the next three years
Electronics retailer Currys has added to the cheery mood this morning, by raising its profit outlook for the last financial year.
It now expects to make adjusted pre-tax profits of £110-120m in the year ending 29 April, up from previous guidance of around £104m.
Currys says that trading in the UK and Ireland has been “better than expectations, especially in the final two months of the year”.
Profits have been bumped up by “continued gross margin improvements”, and cost efficiencies, it says.
But, like-for-like sales in the UK and Ireland were down 7% year-on-year, and fell 10% over the year in Nordic regions, where trading woes have hit the group.
Currys says:
Nordics trading environment remains challenging, but under new management we have made progress on margins and costs.
Also coming up today
Investors are watching Turkey closely, where yesterday’s election appears to be heading for a runoff. With the count continuing, neither president Recep Tayyip Erdoğan or his main rival Kemal Kılıçdaroğlu appear likely to reach the 50% threshold to win the presidential race outright.
We’re also expecting the EC to publishes its spring economic forecasts this morning, with new predictions for gross domestic product, inflation, employment and public finances.
The agenda
9am BST: EC spring economic forecasts
10am BST: Eurozone industrial production for March
11am BST: Spanish consumer confidence for April
1.30pm BST: New York Empire State Manufacturing Index index for May
Updated
