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European markets fall as French economy grows but Germany shrinks

European markets still fell despite France’s economy growing at its fastest pace in more than five decades. Photo: Gonzalo Fuentes/Reuters
European markets still fell despite France’s economy growing at its fastest pace in more than five decades. Photo: Gonzalo Fuentes/Reuters (Gonzalo Fuentes / reuters)

European stock markets gave up the previous session’s gains on Friday despite news of the French, Spanish and Swedish economies beating growth expectations.

In London, the FTSE 100 (^FTSE) ended 1.1% lower, with financials, real estate firms, and consumer non-cyclicals all down, while the French CAC (^FCHI) also tumbled 1.1% and the DAX (^GDAXI) was 1.5% lower in Frankfurt.

It came as France’s economy grew at its fastest pace in more than five decades, since 1969, last year as the country bounced back from the coronavirus pandemic quicker than expected.

GDP growth hit 7% in 2021 compared with an 8% contraction in 2020, when lockdowns hampered economic growth. Consumers helped the recovery, with household spending rising by 0.4% in the quarter following the relaxation of restrictions earlier in 2021.

Finance minister Brune Le Maire told French radio: “The French economy has rebounded spectacularly and that's erased the economic crisis. There are still some sectors that are still having trouble, like tourism and hotels, but most are recovering very strongly and that's creating jobs.”

Meanwhile, Spanish GDP grew by 2% in the last quarter of 2021, better than the 1.4% growth expected, and the Swedish economy saw a growth of 1.4% during the final three months, also beating forecasts.

Germany, however, contracted 0.7% in the fourth quarter, worse than the 0.3% contraction feared, thanks to a wave of COVID cases in the last quarter, which led to a lockdown of unvaccinated citizens in early December.

Read more: COVID drags down UK retail sales for January

Across the pond, the S&P 500 (^GSPC) rose 0.9% and the tech-heavy Nasdaq (^IXIC) gained 1.5% after the bell in New York, reversing losses once again. The Dow Jones (^DJI) edged 0.1% higher by the time of the European close.

It came as US wages and salaries rose by 1.1% in the last quarter of 2021, according to new data from the Bureau of Labour Statistics.

"The employment cost index shows that overall compensation costs increased by 1.0% in the fourth quarter, which pushed the annual growth rate up to 4.0%, from 3.7%," Paul Ashworth of Capital Economics said.

"We’re more interested in wages & salaries for private workers, however, which increased by 1.2%, with the annual growth rate hitting a 40-year high of 5.0%, from 4.6%.

"Even with the unexpectedly strong fourth-quarter GDP gain indicating that productivity growth was a little stronger than we had anticipated, 5% wage growth is nowhere near consistent with a 2% price inflation target."

Watch: Rising wages, weak trading hurt banks

Elsewhere, Apple (AAPL) stock was up 3.4% after it posted record sales of $124bn (£93bn) despite the global chip shortage. Profits were also up 20% to an all-time high of $34.6bn.

AJ Bell investment director Russ Mould said: "While everything looks good with Apple at present, and it certainly had a bumper Christmas, you still must ask if it can sustain such strong levels of product sales growth. Has the pandemic simply brought forward a lot of growth for the business?

“A key sales driver over the years has been product innovation – customers seemingly eager to always upgrade to the latest device. But it feels as if Apple hasn’t been as creative in recent years."

Read more: Universal credit: 1.3 million could be missing out on £7,300 a year in benefits

Asian markets were mixed on Friday, at the end of a broadly damaging week for global investors as the Federal Reserve gave notice that the days of ultra-cheap cash were coming to an end quicker than initially thought.

Some bargain-buying provided support in Japan after Thursday's steep drops, with the Nikkei (^N225) climbing 2% on the day.

In Hong Kong, the Hang Seng (^HSI) fell 1% and the Shanghai Composite (000001.SS) also dipped almost 1% during the session.

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