The Guardian - UK (2022-04-30)

Saturday 30 April 2022 The Guardian •

5151

+35.36 +19.23 -560.74 0 .0000 1.1901

FTSE 100 All share Dow Indl Nikkei 225 £/€ £/$

1.2555

7544.55 4185.12 33355.65 26847.90 +0.0072 +0.0116

Musique

concrète

The composer

Rob Lewis

performs his

piece, Tunnel

to Tide,

70 metres

below ground

in London’s

new 15-mile

super sewer,

the Thames

Tideway

Tunnel , to

mark the end

of tunnelling.

PHOTOGRAPH:

DOMINIC LIPINSKI/PA

Alarm over eurozone growth

as war drives up energy costs

Richard Partington

Economics correspondent

Warning lights are fl ashing in the

eurozone economy, with fi rst- quarter

growth in France stalling and shrink-

ing in Italy, as Russia’s war in Ukraine

drives up energy costs across the

continent.

Figures from Eurostat, the EU’s

statistics body, showed growth in

GDP across the single currency area

slipped to 0.2% in the fi rst three

months of this year, down from 0.3%

in the fi nal quarter of 2021, when

the Omicron coronavirus variant

weighed on activity.

City economists had forecast a

growth rate of 0.3% for the 19 euro

area countries, highlighting the eco-

nomic risks from the war in Ukraine

amid soaring wholesale oil and gas

prices exacerbated by the confl ict.

Raising the spectre of stagfl ation –

when living costs soar while growth

in GDP falters – France’s economy

unexpectedly recorded zero growth

as supply chain disruption and higher

energy costs held back activity.

Italy’s economy shrank, Spain

lost momentum, and Germany

rebounded from a contraction in

the fourth quarter when Omicron

and supply chain problems had

weighed heavily on the euro area’s

largest economy.

Separate fi gures for this month

showed eurozone inflation hit a

record high of 7.5%, s uggesting a

weaker period ahead as the confl ict

continues to push up the price of

energy, hitting net importers of gas

across the continent.

Energy was the biggest single fac-

tor in April’s jump in prices, driving

up costs with a 38% year-on-year

increase as wholesale prices for

oil and gas soared, amid fears over

disruption to supplies as the war

continues.

The fi gures come as the European

Central Bank faces pressure to raise

interest rates from a historic low of

-0.5% on its main deposit facility,

with infl ation more than three times

its offi cial 2% target rate.

Russia’s invasion of Ukraine has

added to soaring infl ationary pres-

sure as the global economy recovers

from the Covid pandemic, leading

to steep growth downgrades across

advanced economies from the Inter-

national Monetary Fund this month.

Faced with sweeping economic

sanctions imposed by western pow-

ers, the Russian central bank moved

yesterday to cut interest rates from

17% to 14% in an attempt to shore up

growth as it heads for a deep two-year

recession. Russian GDP is expected to

shrink by 8% -10% this year, the big-

gest annual decline since after the

collapse of the Soviet Union. Refl ect-

ing its isolation , infl ation is forecast

to climb as high as 23%.

But with Russia a major global oil

and gas exporter, the war has had

severe consequences elsewhere, par-

ticularly in European nations reliant

on its gas.

Economists said the eurozone was

at heightened risk of contracti ng in

the second quarter, raising the risk of

recession for several countries as con-

sumers rein in their spending.

Andrew Kenningham , the chief

Europe economist at the consultancy

Capital Economics, said: “Manu-

facturers will take a bigger hit in

Germany than in other parts of the

euro zone but the increase in energy

prices will aff ect the entire region,

as will the fall in export demand and

business confi dence.”

Tensions over the Russian gas sup-

plies have risen in the past week as

the Kremlin cut off Poland and Bul-

garia after ordering importers to pay

in roubles. Analysts said an end to

Russian gas supply was a growing

risk, with Germany expected to be

among those hardest hit given it

reli e d on Russia for 40% of imports.

Melanie Debono , a senior Europe

economist at Pantheon Macroe-

conomics, said Germany was still

expected to grow by 2% this year,

though there were mounting risks

to the downside. The German econ-

omy grew by 0.2% in the fi rst quarter

after a contraction of 0.3% in the fi nal

three months of last year.

“An embargo on Russian gas,

especially if overnight, poses a real

threat to the outlook; it would all

but certainly drag the economy into

recession, dragging the rest of the

eurozone along with it,” Debono said.

The slowdown in the eurozone

compares with a 0.4% contraction

in the US economy in the fi rst quar-

ter. The UK economy is forecast to

grow by about 0.5% in the fi rst quar-

ter. However, analysts have warned

of risks of a summer recession amid

the highest infl ation since the 1990s.

NatWest

surprises

with jump in

profi ts as

stress looms

Kalyeena Makortoff

Banking correspondent

NatWest has reported a 40% jump in

fi rst-quarter profi ts but warned about

the UK’s “uncertain” economy amid

the cost of living crisis, saying it had

referred more than 2,000 customers

to debt experts at Citizens Advice.

The banking group – formerly

known as Royal Bank of Scotland –

beat expectations after reporting a

jump in pre-tax profi ts to £1.2bn com-

pared with £885m a year earlier. That

was compared with analyst forecasts

of a 15% drop in profi ts to £755m.

Its strong fi rst-quarter results – the

fi rst reported since the UK govern-

ment stake in the group fell below

50% last month – were supported by

mortgage borrowing, higher inter-

est rates and a rebound in consumer

spending as Covid restrictions lifted.

NatWest was also able to release

£38m of the cash it originally put

aside for potential defaults on loans

during the pandemic, despite what

it said was “signifi cant uncertainty

in the economic outlook”.

That contrasts with action taken

by banking peers such as Lloyds and

Barclays, which were forced to take

higher provisions for defaults in light

of the cost of living crisis in the fi rst

quarter, amid fears that customers

could fall behind on loan payments

after infl ation hit 7% last month.

Alison Rose, NatWest’s chief exec-

utive , said: “The world has changed

considerably during the last three

months,” noting the impact the Rus-

sian invasion of Ukraine was having

on the UK economy.

“We are also very aware of the chal-

lenges and concerns the cost of living

crisis is causing for many of our cus-

tomers. NatWest Group is focus ed on

providing practical help and support

for the people we serve .”

NatWest said it had referred 2,100

people to Citizens Advice in the past

year. The banking group serves about

19 million customers across the UK

and Ireland.

Rose said that while default rates

were still “very low”, the bank was

aware of the risks ahead : “ The next

round of energy costs will be coming

through later in the year. That’s going

to aff ect people’s balance sheets.”

‘A Russian gas

embargo would drag

the German economy

into recession’

Melanie Debono

Senior Europe economist

40%

Increase in NatWest’s fi rst-quarter

profi ts to £1.2bn. The bank warned

of cost of living hardships to come

0.2%

First quarter growth in the euro

area, down from 0.3% forecast,

with France seeing zero growth