Germany Enters Recession in Blow to Europe’s Economy
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Germany Enters Recession in Blow to Europe’s Economy

Second straight quarter of contraction in eurozone’s largest economy might prompt greater caution by central bankers

By PAUL HANNON
Tue, May 30, 2023 8:51amGrey Clock 2 min

Germany slipped into recession during the first three months of the year, as households cut spending in response to sharply higher prices for energy and food.

With Europe’s largest economy now having shrunk for two quarters in a row, meeting the technical definition of a recession, the eurozone as a whole may also have also contracted in the first quarter.

The development doesn’t fundamentally alter economists’ views about the country’s immediate prospects, and any decline in output in the broader region is likely to have been modest.

Still, a recession in the eurozone would deflate some of the optimism that has built up around the currency area’s economic prospects in recent months. It could also inspire greater caution among policy makers at the European Central Bank as they prepare to raise interest rates further.

“A technical recession would be a change in the overall narrative on how resilient the eurozone economy has been over recent quarters,” said Bert Colijn, an economist at ING.

Germany’s statistics agency said Thursday that gross domestic product—a broad measure of the goods and services produced by an economy—was 0.3% lower in the three months through March than in the final quarter of last year. It had previously estimated that the economy flatlined in the first quarter, having contracted by 0.5% in the final quarter of last year.

The agency said a 1.2% fall in household consumption was the main reason for the contraction, as households saw their spending power eroded by a surge in food prices. In March, German households were paying 21.2% more for their food purchases than a year earlier.

In the months immediately following the invasion of Ukraine, economists had warned that Germany faced a high risk of sliding into recession, given its reliance on Russian supplies of natural gas. But economic data releases at the turn of the year appeared to indicate that Germany would avoid that fate.

The revised figures for the first quarter confirmed that the world’s fourth-largest economy had succumbed to recession, but one less severe than feared when the Kremlin cut gas supplies in summer 2022.

Business surveys have pointed to a return to growth in Germany during the second quarter. But the impact of higher borrowing costs and a weak expansion in many of its main export markets point to the possibility of a renewed contraction in the three months through September.

“Higher interest rates will continue to weigh on both consumption and investment and exports may also suffer amid economic weakness in other developed markets,” said Franziska Palmas, an economist at Capital Economics who expects declines in GDP during both the third and fourth quarters.

Should the estimates for growth in other eurozone members be unchanged, the new measure of GDP for Germany suggests the currency area’s economy as a whole contracted slightly in the first quarter. The European Union’s statistics agency currently estimates it grew at an annualised rate of 0.3%, after shrinking by 0.2% in the final quarter of last year.

While that change in measured output would be small, it may have an influence on the ECB’s interest rate decisions over coming months. The ECB’s economists raised their growth forecasts for this and subsequent years in March, partly in response to a picture of the eurozone economy at the turn of the year that now appears overly optimistic.



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The Great Wealth Transfer: How rich millennials will invest the billions coming their way

The younger generation will bring a different mindset to how and where their newfound wealth is invested

By Bronwyn Allen
Fri, Mar 1, 2024 2 min

There is an enormous global wealth transfer in its beginning stages, whereby one of the largest generations in history – the baby boomers – will pass on their wealth to their millennial children. Knight Frank’s global research report, The Wealth Report 2024, estimates the wealth transfer set to take place over the next two decades in the United States alone will amount to US$90 trillion.

But it’s not just the size of the wealth transfer that is significant. It will also deliver billions of dollars in private capital into the hands of investors with a very different mindset.

Seismic change

Wealth managers say the young and rich have a higher social and environmental consciousness than older generations. After growing up in a world where economic inequality is rife and climate change has caused massive environmental damage, they are seeing their inherited wealth as a means of doing good.

Ben Whattam, co-founder of the Modern Affluence Exchange, describes it as a “seismic change”.

“Since World War II, Western economies have been driven by an overt focus on economic prosperity,” he says. “This has come at the expense of environmental prosperity and has arguably imposed social costs. The next generation is poised to inherit huge sums, and all the research we have commissioned confirms that they value societal and environmental wellbeing alongside economic gain and are unlikely to continue the relentless pursuit of growth at all costs.”

Investing with purpose

Mr Whattam said 66% of millennials wanted to invest with a purpose compared to 49% of Gen Xers. “Climate change is the number one concern for Gen Z and whether they’re rich or just affluent, they see it as their generational responsibility to fix what has been broken by their elders.”

Mike Pickett, director of Cazenove Capital, said millennial investors were less inclined to let a wealth manager make all the decisions.

“Overall, … there is a sense of the next generation wanting to be involved and engaged in the process of how their wealth is managed – for a firm to invest their money with them instead of for them,” he said.

Mr Pickett said another significant difference between millennials and older clients was their view on residential property investment. While property has generated immense wealth for baby boomers, particularly in Australia, younger investors did not necessarily see it as the best path.

“In particular, the low interest rate environment and impressive growth in house prices of the past 15 years is unlikely to be repeated in the next 15,” he said. “I also think there is some evidence that Gen Z may be happier to rent property or lease assets such as cars, and to adopt subscription-led lifestyles.”

Impact investing is a rising trend around the world, with more young entrepreneurs and activist investors proactively campaigning for change in the older companies they are invested in. Millennials are taking note of Gen X examples of entrepreneurs trying to force change. In 2022,  Australian billionaire tech mogul and major AGL shareholder, Mike Cannon-Brookes tried to buy the company so he could shut down its coal operations and turn it into a renewable energy giant. He described his takeover bid as “the world’s biggest decarbonisation project”.

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