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GERMAN UNEMPLOYMENT RISES LESS THAN EXPECTED IN NOVEMBER

Three workers in safety helmets working in a factory - Copyright Canva
Copyright Canva
By Indrabati Lahiri
Published on 29/11/2024 - 15:12 GMT+1
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The number of unemployed people rose far less than expected this month,
reflecting a resilience in the German labour market, despite a surge in job cuts
recently by major companies such as Volkswagen and Schaeffler.

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Germany released its unemployment report for November on Friday. The number of
unemployed people in November 2024 touched 2.86 million, according to the
Federal Employment Agency, also known as Bundesagentur für Arbeit. This was a
rise of 7,000 from October, in seasonally-adjusted terms. 

The figure was a smaller than expected increase, with analysts polled by Reuters
estimating that there would be a surge of about 20,000. In contrast, the number
of unemployed people jumped by 27,000 in October. 



November’s unemployment report shows that the German labour market is still
quite resilient, despite several large companies such as Volkswagen and
Schaeffler announcing a slew of job reductions in the last few months. This has
already dealt a significant blow to Germany’s industrial sector.

The unemployment rate came up to 5.9% in November 2024, with the number of
unemployed people falling by 17,000 compared to October. Compared to November
2023, however, there was an increase of 168,000 people. 

The seasonally adjusted unemployment rate was 6.1 in November 2024, which was
the same as October, as well as being the highest since February 2021. 

The number of people who were unemployed in November 2024 came up to 3,554,394
which was 4000 less than October. However, it was 109,000 more compared to
November 2023. This figure was also 2,000 more than October, on a
seasonally-adjusted basis. 

In November, there were 668,000 job openings, which was a fall of 65,000 from
the same month last year, as hiring activity continues to lag. 


Related
 * Volkswagen workers in Germany ready to strike in early December
 * How Germany is planning to invest €2 billion in its semiconductor sector


GERMAN RETAIL SALES DROP IN OCTOBER

The German month-on-month retail sales report for October was also released on
Friday, coming in at -1.5%, a significant fall from September’s 1.6%, according
to the Federal Statistical Office. This was also considerably below market
expectations of 0.3%. 

This decrease was mainly because of internet and mail order sales falling 2.4%,
while non-food sales dropped 2.2%. On the other hand, food sales inched up
0.1%. 

Year-on-year retail sales also missed forecasts by a wide margin, coming in at
1% in October, compared to 4.2% in September and analyst expectations of 3.2%. 

The rising cost of living in Germany and its slowing economy have both
contributed to slowing retail sales, as consumers are unwilling to spend on
big-ticket items. Wider geopolitical uncertainty, especially concerning US
tariffs, have also hit economic expectations for the coming year. This is
because Germany relies heavily on exports, which may be hit significantly, in
case of a tariff or trade war between the EU and the US. 


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Business Economy


GREEK BONDS MARK HISTORICAL MILESTONE: SPREAD ERASED AGAINST FRANCE

A Greek flag waves outside an office building in Athens, Friday, June 5, 2014.
- Copyright Thanassis Stavrakis/AP
Copyright Thanassis Stavrakis/AP
By Piero Cingari
Published on 29/11/2024 - 14:26 GMT+1•Updated 14:27
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Greek sovereign bonds have achieved a historic milestone, closing their yield
gap against France, reflecting Greece's fiscal reforms and economic resilience.
Meanwhile, French bonds face pressure from political uncertainty, rising
deficits, and structural economic challenges.

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During the darkest days of the eurozone sovereign debt crisis, Greek 10-year
bonds yielded nearly 40 percentage points, or about 4,000 basis points, more
than France’s government bond, as the hellenic country teetered on the brink of
default, weighed down by a debt burden exceeding 175% of the gross domestic
product, severe austerity measures, and the spectre of a "Grexit.

Fast forward twelve years, Greece has rewritten its economic narrative, with its
government bonds narrowing the gap to France’s, marking a remarkable turnaround
for the former poster child of the Eurozone's debt crisis.



As of late November, Greece’s 10-year sovereign bonds yielded below 3%, aligning
with the yield on France’s OAT bonds. In effect, investors now receive identical
compensation for lending to Greece as they do to France.

This shift reflects Greece’s fiscal renaissance and relative stability,
juxtaposed with rising concerns over France's fiscal and political trajectory.




GREEK BONDS: FROM CRISIS TO CONFIDENCE

The driving force behind Greece's remarkable bond market performance is a
combination of fiscal discipline, economic reforms, and resilience against high
interest rates.

Analysts attribute the milestone to sustained fiscal overperformance, with
Greece’s primary budget surplus expected to reach 2.4% of GDP this year,
surpassing the 2.1% target.

"The Greek economy continues to outperform, with robust private consumption and
investment driving growth,” said Bank of America analyst Athanasios Vamvakidis
in a recent note.



According to Bank of America, Greece remains insulated from rising interest
rates compared to its eurozone peers.

Most of its public debt is held officially under fixed, low-interest terms with
an average maturity of 20 years, while private sector debt remains subdued
following a decade of credit contraction.

The resurgence of Greek government bonds (GGBs) has extended to the broader
financial sector. “We now have a positive outlook on the Greek banking sector,”
added Vamvakidis, with Buy ratings on major players like Eurobank, Piraeus, and
Alpha Bank.

GGBs’ tightening spreads against German Bunds—currently around 70 basis
points—reflect the market’s confidence in Greece’s fiscal health, though
geopolitical and broader market risks could temper further gains.




FRANCE FACES MOUNTING FISCAL AND POLITICAL PRESSURE

Meanwhile, French bonds have faced headwinds, with the yield on 10-year OATs
climbing to 2.945% in late November, reflecting an 81.7-basis-point premium over
German Bunds. The sell-off was triggered by a confluence of fiscal challenges
and political uncertainty.

Prime Minister Michel Barnier’s government is grappling with public backlash
over a contentious €60bn spending-cut proposal, which Marine Le Pen’s National
Rally opposes.

With parliamentary elections potentially looming next July, political stalemates
risk paralysing fiscal reforms.

Goldman Sachs analyst Alexandre Stott noted the difficulty of reducing France’s
budget deficit from 6.1% of GDP to the government’s 5% target, describing it as
“a tall order.” Stott added, “We expect the debt-to-GDP ratio to rise to 118% by
2027, given the scale of the proposed consolidation and the reliance on tax
increases.”

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Political fragility further complicates France’s fiscal consolidation efforts.
“The lack of political capital and limited fiscal headroom will likely constrain
France’s ability to tackle structural reforms in the near term,” Stott warned.


GREECE VS. FRANCE: STRUCTURAL CHALLENGES HIGHLIGHT ECONOMIC DIVERGENCE

The contrasting trajectories of Greece and France reflect deeper structural
shifts.

Greece has emerged as one of Europe’s most dynamic economies, supported by
improved creditworthiness and fiscal discipline.

France, by contrast, faces entrenched challenges such as ageing demographics,
high energy costs, and stalling productivity.

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According to Eurostat's latest Autumn Economic Forecast, Greece's economy is
projected to grow by 2.3% in 2025, up from 2.1% in 2024, reinforcing its
position as one of the eurozone's most dynamic performers. By contrast, France's
economic growth is expected to slow to a modest 0.8% in 2025, down from 1.1% in
2024, highlighting the challenges facing Europe’s second-largest economy.

This divergence also extends to fiscal trajectories. Greece's public debt-to-GDP
ratio is forecast to decline significantly, from 153.1% in 2024 to 146.8% in
2025 and 142.7% in 2026, reflecting ongoing fiscal consolidation.

Meanwhile, France’s public debt is set to rise steadily, increasing from 112.7%
in 2024 to 115.3% in 2025 and reaching 117.1% by 2026.


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EUROZONE'S INFLATION RATE RISES TO 2.3%: SHOULD THE ECB BE CONCERNED?

The sun shines over the Euro sculpture in fron of the European Central Bank in
Frankfurt, Germany, Wednesday, Oct. 26, 2011. - Copyright Michael Probst/AP
Copyright Michael Probst/AP
By Piero Cingari
Published on 29/11/2024 - 11:57 GMT+1
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Annual inflation in the eurozone edged higher in November, matching
expectations, while Germany reported its worst retail sales drop in two years,
signalling broader economic challenges for the region.

ADVERTISEMENT

Eurozone inflation rose to 2.3% year-on-year in November, up from 2% in October,
according to preliminary data released by Eurostat on Friday.

The figure aligns with market expectations and reflects the anticipated
narrowing of the deflationary impact of energy prices.



While the annual increase marks a slight departure from the European Central
Bank's (ECB) target, the monthly data shows a more optimistic trend. Consumer
prices in the eurozone fell by 0.3% in November compared to October, the
steepest monthly decline since January 2024.

This drop supports hopes that disinflation is continuing, potentially paving the
way for further rate cuts by the ECB.

Energy prices, a major factor in inflation dynamics, remained 1.9% lower
year-on-year in November.

However, this decline was less pronounced than the 4.6% and 6.1% drops seen in
October and September, respectively, as the base effect from last year’s energy
price spikes fades.

On a monthly basis, energy prices rose by 0.6%. Excluding energy, the annual
inflation rate held steady at 2.7%, while the core inflation measure, which
excludes both energy and food prices, ticked up to 2.8% year-on-year, compared
to 2.7% in October.



Monthly core inflation declined by 0.4%, suggesting that underlying price
pressures may be easing. Services prices—a "sticky" inflationary component—rose
3.9% year-on-year but fell by 0.9% compared to October, offering a glimmer of
hope for the inflation outlook.




IMPLICATIONS FOR THE ECB: ARE RATE CUTS IN JEOPARDY?

The November inflation data is unlikely to alter the ECB's current policy
trajectory. The decline in monthly core inflation and services prices supports
the argument that disinflationary forces remain intact.

This trend provides the ECB with further justification to lower interest rates
at its December meeting, especially as economic activity weakens across the
eurozone.

The latest Purchasing Managers' Index (PMI) surveys show that the eurozone’s
private sector activity contracted in November, highlighting deteriorating
economic momentum.



Eurozone Composite PMI fell to 48.1 in November, down from the neutral 50.0
registered in October, signaling the sharpest contraction since January and
missing market expectations for an unchanged reading.

Moreover, while the manufacturing sector remains mired in a deep slump, the
services sector is no longer propping up the economy. For the first time in 10
months, the services sector slipped into contraction, with its PMI dropping to
49.2 from 51.6 in October.

"The market appears to have settled on a 25bp cut in December, particularly
after Schnabel’s standout hawkish commentary wiped out the remaining bets on
50bps this week. The economy is not falling off a cliff just yet and there is
uncertainty about where the neutral rate is, so there is no pressing need to
start frontloading cuts," said Kyle Chapman, forex market analyst at Ballinger
Group.


GERMANY: RETAIL SALES PLUNGE

Germany, the eurozone’s largest economy, continues to face a sharp downturn in
consumer spending.

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Data from the Federal Statistical Office revealed that retail sales fell by 1.5%
month-on-month in October 2024, following an upwardly revised 1.6% rise in
September. The October decline significantly exceeded market expectations of a
0.3% drop and marked the steepest monthly contraction in two years.

The weak retail performance underscores a worsening consumer outlook in Germany,
adding to concerns about broader economic fragility in the region.


MARKET REACTIONS

Financial markets showed little reaction to the inflation and retail data. The
euro held steady at $1.0560 against the US dollar, while eurozone sovereign bond
yields remained unchanged.

Germany’s benchmark 10-year Bund yield hovered around 2.12%, its lowest level in
nearly two months.

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Equity markets also traded flat, with the Euro STOXX 50 index remaining
unchanged after a 0.4% rise on Thursday.

Among major blue-chip stocks, Airbus SE gained 1.3%, Schneider Electric SE rose
1%, and LVMH advanced 0.6%. On the downside, Telefonica and Banco Santander fell
by 1.5% and 1.2%, respectively.


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