Green shoots for Germany as nation aims to avoid 'sick man of Europe' tag: Konrad Pietka

For instance, many vital sectors, like manufacturing, still need to shake off the fallout from rising energy costs, following the outbreak of war in Ukraine.

Falling inflation, now at 2.9 per cent, has fuelled hopes that the European Central Bank will cut interest rates in the first half of 2024, which should ease some of the pressures on German businesses. The nation’s finance minister, Christian Lindner, has accepted that there are structural problems to fix, but opposed the claim that Europe’s largest economy is becoming the next “sick man of Europe.”

The Organisation for Economic Co-operation and Development (OECD) estimates a return to growth of 0.6 per cent in 2024. Only time will tell whether this projection can be met.

Over the channel, the Office for National Statistics (ONS) reported that UK earnings growth, including bonuses, decelerated to 5.8 per cent in Q4 of 2023, down from a high of 8.5 per cent in the summer. In theory, this should reduce inflationary pressure, although the figure may still be too high for the Bank of England to confidently begin cutting interest rates.

Wage growth still exceeds inflation, which has held steady at 4 per cent in January. While this is favourable news for workers, it may prolong the time it takes for inflation to reach the BoE’s 2 per cent target, if businesses decide to pass labour costs onto consumers.

Even as firms grapple with larger wage expenditures and 16-year-high interest rates, the job market remains tight, with the unemployment rate standing at a respectable 3.8 per cent. However, part of this can be attributed to a decrease in the employment rate, which has fallen by 1.2 per cent points since February 2020 as more people are unavailable for work because of long-term illness.

Investors are still anticipating the first interest rate reduction to take place by June this year. But this is with less certainty than before, estimating the probability of this to be 60 per cent, down from 75 per cent before the data was released.

In Yorkshire, Bradford-based Morrisons recently released its 2022/2023 trading update. The headline figure was a 2.7 per cent increase in full year revenue, excluding fuel, to £14.9bn, with growth of 3.2 per cent in the last quarter of 2023.

One of the fastest growing divisions was convenience, consisting of McColl’s and Morrisons Daily stores, which reported revenue growth of 9 per cent in Q4.

Rami Baitiéh, CEO since November 2023, has called the trading update results “very positive,” but emphasised plans are being drawn up to “reinvigorate, refresh and strengthen Morrisons and to start a new chapter,” alluding to the aim that one of the main focuses will be further improving customer satisfaction.

Konrad Pietka is part of the Investment Research Team at Redmayne Bentley