FirstFT: Gas crisis raises recession risk for eurozone

The eurozone is forecast to eke out growth fractionally above zero in the second quarter, but economists expect a steady deterioration in the bloc’s economy over the next year as recession risks loom.

Eurostat’s first estimate of second-quarter gross domestic product, out tomorrow, is expected to show an expansion of 0.1 per cent from the previous quarter, according to a poll by Reuters.

That marks a sharp deterioration from 0.6 per cent growth over the previous three months and would be the weakest performance since a Covid-19 surge dragged the bloc into a short recession at the start of 2021.

Russia’s invasion of Ukraine has sent energy and food prices soaring, eroding consumers’ spending power and threatening to unleash an energy crisis that squeezes manufacturers and households over the coming winter.

European gas prices jumped as much as 13 per cent yesterday after flows on the Nord Stream 1 pipeline were cut to just a fifth of normal capacity, as Russia followed through on a threat to restrict supplies.

“It is like watching a car crash in the making, a slow-burn crisis,” said Katharina Utermöhl, senior European economist at Allianz. “Unlike in the pandemic, there is unlikely to be a marked rebound next year.”

Five more stories in the news

1. Fed raises rates by 0.75 points for second consecutive month The US Federal Open Market Committee has lifted the benchmark policy rate by 0.75 percentage points for the second month in a row, to a range of 2.25 per cent to 2.50 per cent, in a unanimous move aimed at taming soaring inflation.

2. Musk saga hits Twitter’s ads business The social media company is suffering from falling morale, staff departures and an uphill battle to keep its $4.5bn-a-year advertising business afloat as it grapples with a legal battle over Elon Musk’s efforts to scrap a $44bn takeover, Twitter insiders, former employees and ad industry executives told the Financial Times.

3. Viktor Orbán adviser resigns over race comments Sociologist Zsuzsa Hegedüs stepped down from her role as an adviser on social inclusion on Tuesday after the Hungarian prime minister warned that his country was becoming more “mixed race”, as in western nations, drawing an international backlash.

4. Facebook parent Meta reports first revenue decline Meta reported its first quarterly revenue decline, laying blame on macroeconomic pressures and offering investors a gloomy outlook for the coming months. The Facebook parent company is the latest big online ads player to wilt as advertisers pull back on spending.

5. China’s central bank seeks $148bn bailout for developers Beijing is seeking to mobilise up to Rmb1tn ($147.7bn) of loans to restart stalled property developments, in its most ambitious attempt to revive the debt-stricken sector and mollify tens of thousands of home buyers who have stopped paying their mortgages in protest.

The day ahead

Macron meets Saudi crown prince French president Emmanuel Macron will meet Saudi Arabia’s Mohammed bin Salman in Paris as Europe faces an escalating energy crisis. The meeting is part of the crown prince’s first trip to Europe since the killing of journalist Jamal Khashoggi in 2018. (Politico)

Rishi Sunak pitches Tories The former UK chancellor will attempt to shake off claims that his leadership bid is faltering when he makes a direct appeal to Conservative party members in the first of 12 hustings.

WhatsApp and Snapchat Russia hearings Legal proceedings against the tech companies will take place in Moscow over their refusal to localise Russian data. WhatsApp faces a fine of up to Rbs18mn ($309,000), while Snap, which owns app Snapchat, could be fined Rbs6mn.

Corporate earnings The marathon of corporate results continues. We have our eye on Amazon, Apple, Barclays, Intel, Mastercard, Nestlé, Nissan, Pfizer, Samsung, Stellantis, Volkswagen and more. European supermajors — BP, Shell and TotalEnergies — are expected to report bumper profits over the next week.

Economic data French consumer confidence figures are out, as is Germany’s preliminary July consumer price index. An advance estimate of headline US second-quarter gross domestic product is set to show the economy expanded slightly. (FT, WSJ)

What else we’re reading

Credit Suisse turns to ‘Uli the knife’ After a bruising few years in which the Swiss bank lurched from crisis to crisis, chair Axel Lehmann and the board finally decided on a turnround plan. But who would lead the change? That question was settled yesterday with the promotion of Ulrich Körner. Does Körner’s appointment signal a change in the bank’s fortunes? Let us know by voting in our latest poll.

Opinion: Truss is the right choice for this Conservative party Today’s Tories dislike hard choices. This is a problem for Rishi Sunak, because the former chancellor has decided to make facing up to them his pitch to succeed Boris Johnson. The cakeist candidate is Liz Truss, and she is prepared to go full gateau if it gets her to the top, writes Robert Shrimsley.

How bad will the global food crisis get? Food commodity prices are falling, but experts say global production and hunger rates might be even worse in 2023. The war in Ukraine is only one of a multitude of problems, including droughts and supply chain turmoil, that could push hunger rates higher for many years to come.

To combat disease, look beyond the Kardashian of proteins If there were a celebrity hierarchy of proteins, P53 would be its Kim Kardashian. The most studied protein in the human body scuppers tumour growth. It is also a beneficiary of the “street light effect”, in which a phenomenon that is already illuminated attracts further attention.

Inside the high-stakes world of elite chess Eight of the game’s grandmasters gathered in Madrid this month for an international summit. At stake was the game’s highest title, which has been held by fewer than a dozen people in the modern era — as well as the future of chess itself.

Books

Former Fed chair Ben Bernanke and historian Edward Chancellor offer conflicting perspectives on the crisis in central banking in two new books reviewed by Martin Wolf. “Chancellor has written an overheated and unbalanced polemic,” Wolf says. “Yet this does not altogether vindicate Bernanke’s managerialist perspective.”