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Elliott takes multibillion-dollar activist stake in Salesforce

Pressure mounts on Marc Benioff’s software group after Starboard Value fund calls to boost profit margins

Elliott Management has built a multibillion-dollar position in Salesforce, as another big activist investor joins the shareholder roster of a software group facing calls to cut costs and improve its stock price.

The New York-based firm joins fellow activist Starboard Value, which disclosed a stake in Salesforce in October with a call to increase profit margins. It was unclear what Elliott’s position on the company is and whether it has made recommendations to the board.

The activist stakes will raise pressure on Salesforce and its co-chief executive and co-founder Marc Benioff. The company has shed about $170bn in market value from its peak in late 2021 amid retrenchment in the technology sector following a pandemic-driven boom.

“Salesforce is one of the pre-eminent software companies in the world, and having followed the company for nearly two decades, we have developed a deep respect for Marc Benioff and what he has built,” Jesse Cohn, managing partner at Elliott, said in a statement. “We look forward to working constructively with Salesforce to realise the value befitting a company of its stature.”

Salesforce declined to comment. Elliott’s stake was first reported by the Wall Street Journal.

Earlier this month, Salesforce announced it would cut around 10 per cent of its workforce in a reversal of a pandemic hiring spree. The company added nearly 17,000 employees in 2021. The group is one of a number of Big Tech companies, including Alphabet, Amazon, Microsoft and Meta, to have announced sweeping job cuts in the past few weeks amid a slowdown in growth across the industry.

“We hired too many people leading into this economic downturn we’re now facing, and I take responsibility for that,” Benioff wrote in a letter to staff at the time. The company said it expected to incur $1.4bn to $2.1bn in charges associated with the lay-offs and restructuring.

The San Francisco-based enterprise software group has also had several high-profile departures from its management ranks. Co-chief executive Bret Taylor announced in November that he would be stepping down this month. Stewart Butterfield, the chief executive of workplace tool Slack, which Salesforce acquired in July 2021, also confirmed last month that he would be departing.

Elliott is one of the best-known activists on Wall Street with a reputation for tackling technology companies. Under Cohn’s oversight, the firm has become one of the largest and most active software investors in the world.

Last year, Elliott helped to assemble takeovers of enterprise software specialist Citrix Systems and media ratings group Nielsen, two of the largest leveraged buyouts of the year, through its private equity unit Evergreen Coast Capital.

Elliott has the flexibility to build large activist public shareholdings as well as to help arrange and participate in large private equity deals. Along with buyout firm Francisco Partners, it acquired non-core assets from Dell Technologies in 2016. Elliott has also worked with a number of large private equity firms to assemble LBOs outright.

Luxury boom shows the staying power of the ultra-rich

Many of our expectations about the spending patterns of the wealthy are being confounded

We may be heading for a global recession, but there’s one group of people who can’t seem to stop spending — the world’s richest. While retail sales in general have been falling, and the stock market was down by 20 per cent last year, spending on luxury goods and experiences actually grew by roughly the same amount in 2022, as wealthy individuals unleashed their animal spirits.

The data, which comes from a new Bain & Company study of the luxury market, challenges much of our conventional wisdom about luxury spending and the rich in general.

For starters, last year’s boom in the €1.38tn market was driven almost entirely by Gen Z and Y, who dominated the personal goods market (including luxury clothing, bags, jewellery, etc). “The spending of Gen Z and even the younger Generation Alpha is set to grow three times faster than other generations through 2030,” according to Bain. So much for youthful worries about the materialism of their predecessors.

Further confounding our assumptions, this luxe boom wasn’t fuelled by China, which was still in lockdown for much of last year, but by the US, which led the market. And within America, it was New York that doubled down on its status as the luxury capital of the world. Despite all that Wall Street and Silicon Valley money moving to places such as Miami or LA or Austin, the Big Apple is still where people go to drop big bucks on things like jewellery, watches, handbags and luxury tourism. (You need look no further than the opening of the opulent new Aman New York, where room prices can reach $15,000 a night). 

I have to say, I wouldn’t have expected much of this. I thought that even high net worth individuals would be somewhat more sensitive to the steep fall in asset prices, given that these are usually people whose money comes largely from assets rather than income. Perhaps they would spend, but not in a way that actually mirrors the equity dip, only on the upside.

But luxury experts say that there’s simply been so much wealth created over the past two decades that even a 20 per cent stock market price correction is a blip for the top 5 per cent of the market. And it is this top 5 per cent that represents 40 per cent of overall luxury market sales, according to Milton Pedraza, CEO of the New York-based Luxury Institute.

“OK, so the market is down — maybe if I have a family office, the checks I send out in a given month will be for $80,000 instead of $100,000,” says Pedraza, who analyses the premium goods and services industry. But many families haven’t blinked, he says. “There’s still a lot of wealth out there.”

And wealthy people have more time in which to spend their money, since they now live roughly a decade longer than their low-income counterparts, thanks to better healthcare, diet, nutrition and rest. Pedraza believes the notion of the rich as workaholics is a myth. For them, he says, “it’s a sprint not a marathon. Maybe they are working hard to close a deal, and then they go on a long holiday.” He estimates the UHNW individuals he interviews regularly work about six hours a day, “so they are less stressed.”

Not only are the rich living longer, there are more of them than there used to be, because of the continued growth of an asset-owning class in developing countries. And after half a century of turbocharged growth, there is also more intragenerational wealth, notes Bain partner Claudia D’Arpizio. “You’ve now got five generations” of luxury consumers buying into brands like Vuitton, Hermès or Chanel, which they’ve literally grown up with.

It is brands like these that have done the best of late. They have managed this by remaining extremely upscale rather than trying to appeal to the bigger but more economically vulnerable part of the market, the lower 80 per cent of consumers. “They’ve targeted a mindset, rather than a demographic,” says Pedraza. And the mindset is “‘Grandma (or Great-Grandma), can I borrow that Kelly bag?’”

That gets to another reason behind the luxury boom — the growth of a secondary market. High-end vintage purveyors are ubiquitous in the cities where clients live and the places they vacation. But there are also mass-market online resellers, such as The RealReal, which provide a venue for working professionals to resell used items of upmarket clothing or jewellery.

One of the most interesting differences between the post-Covid luxury boom and the post-2008 market is that, this time around, there seems to be no worry about conspicuous consumption. Perhaps this is a hangover from the “greed is good” Trump era. Or perhaps it reflects different policy responses to the respective crises. After the global financial crisis, governments bailed out companies. After the pandemic, American consumers got $2tn in stimulus. They’ve clearly been spending it.

Will this last? I suspect as inflation (which also enlarged the luxury market in 2022 by increasing prices) begins to bite, you’ll see the lower 80 per cent of luxury consumers fall off. They might be willing to buy a Chanel bangle or an Hermès scarf once a year, but they also carry debt, which is getting more costly.

As for the world’s richest, their money — and their lifestyles — really do seem to reflect a new Gilded Era. I can’t help but wonder when, and how, it will all end.

US fund managers turn away from China and look to Europe for growth

American groups are embarking on a hiring spree as they look to expand their operations in the region

Top US investment management firms are going on a hiring spree in Europe as draconian anti-Covid measures and rising geopolitical tensions have pushed them to redouble their search for growth outside China.

Major American firms — such as Capital Group, JPMorgan Asset Management, T Rowe Price and BlackRock — are planning to expand longstanding offices in Europe as they hunt for growth outside their home market.

China may be reopening but its fierce anti-Covid measures, the EU’s push into sustainable investing and worries over tensions between Beijing and Washington had all favoured doubling down on Europe, said Jonathan Doolan, partner at consultancy Indefi.

“That 1-2-3 punch . . . meant that a lot of firms that had a global footprint are starting to re-examine Europe as a core area for them to succeed,” Doolan said.

“Europe remains an attractive market . . . it is the largest institutional and wholesale market outside of the US. It also has a strong responsible investment focus, supported by the regulatory regime,” said Saker Nusseibeh, chief executive of Federated Hermes, the London-based affiliate of the American firm, which has $624bn under management.

Bigger American firms, which often have established offices in London and distribution networks on the continent, are being selective in their push further into Europe.

Germany, Austria, Switzerland, the UK and Nordic countries are particular targets, as is the region’s growing wealth market, say people familiar with the matter.

While regional competitors with deep roots offer specialised local products, US firms think they have an edge because of their ability to sell access to global strategies.

Until recently, big US firms looking to expand simply paid up — BlackRock bought Barclays’ investment arm BGI for $13.5bn in 2009 and Goldman Sachs Asset Management acquired Netherlands-based NN Investments in 2021.

Now, however, “there’s an acknowledgment that a lot of it is going to need to be done organically or with small acquisitions”, Doolan said.

In order to bulk up, PGIM in December announced two senior hires in London, including a new role for a London-based global head of distribution.

Retail giant T Rowe Price, which has $1.23tn under management, has grown its European operation from about 300 people in 2012 to more than 1,000 now.

Capital, which has $2.2tn under management, has almost doubled its European staff in the past decade from 430 to 750 and will double its space in London when it moves to a new office from next year.

Pimco also announced it would open its first office in France this month.

Senior executives at Capital Group and T Rowe said that while they were keen to invest in Europe they had never invested heavily in building onshore businesses in China.

“What we do in the US is we distribute mutual funds to ordinary investors through financial intermediaries, that’s the bedrock of the business. So the fact that we didn’t do it outside the US always looked a bit odd,” said Hamish Forsyth, president for Europe and Asia at Capital Group, which first started building a business outside the US about a decade ago.

Robert Higginbotham, head of global distribution at T Rowe Price, said the firm was hiring client-facing roles first in Europe and that Germany and Spain had been particularly profitable markets.

“We’re realistic — we’ve been on the ground on our own steam for 22 years but we know . . . we’re not in the top five considerations in most markets. So our plan now is really to double down on where we already exist. It’s about going deeper rather than broader,” said Higginbotham.

For JPMorgan Asset Management, sub-advisory services — where products are sold to savers via banks and other intermediaries — have driven growth in Europe, while the firm sees opportunities in alternatives and sustainable investing.

“Our European business is a core part of our business and growth strategy,” said Patrick Thomson, chief executive for Europe at JPMorgan Asset Management. Nevertheless, he said, China remained key. “We have a long-established presence in China and we’re very committed to it. If you’re a global investor you can’t ignore China, no matter what the politics are.”

The top tier of American alternatives managers, such as KKR and Apollo, which have very successful wealth management businesses, are also looking to Europe and actively hiring as they expand private assets capabilities.

“Those . . . shops are saying: we’ve already been in Europe for long enough, we know all the institutions that matter. Our next leg of the stool is going to be wealth, and we are not going to be encumbered by euros or dollars or pounds in terms of how much we can hire. We’re going to throw bodies at the problem until it solves itself,” Doolan said.

Billionaire investor’s backing values luxury UK brand at more than £100mn

Billionaire hedge fund manager Bill Ackman has taken a minority stake in luxury British watch brand Bremont after he became one of its customers, providing financial backing as the company plans to bring large-scale watch manufacturing back to the UK.

Ackman has invested in the UK-based group alongside existing investors Hellcat in a funding round worth £48.4mn, which gives Bremont a valuation of more than £100mn, according to the company.

Brothers Giles and Nick English founded Bremont in 2002. The brand is best known for watches marketed to pilots and members of the military. In 2014 the company created a number of limited-edition watches containing a piece of muslin used to wrap the Wright brothers’ plane in 1903.

Ackman said he got in touch with the English brothers last summer after buying several watches at the company’s shop in London’s Mayfair.

“I wrote a handwritten note to the founders saying, ‘I admire your company, I love watches and I would love to learn more’,” Ackman told the Financial Times. Nick English contacted the investor and they closed the deal in October.

The founder of Pershing Square Capital Management has invested in privately held Bremont is with his own funds, not Pershing Square’s. He said he views himself as a long-term shareholder and will now help the company find a chief executive as it grows.

“There is a benefit to having us invest versus private equity or a sale,” Ackman said. “Bremont has a very long mandate and we can be a forever investor.”

Ackman said he believed Bremont could reach the scale of Swiss watchmaker Breitling, which was valued at $4.5bn late last year when private equity firm Partners Group took control of the company.

Ackman built a fearsome reputation as an activist investor on Wall Street, amassing positions at public companies and agitating for change. Pershing Square last year embraced a more low-key approach.

Bremont’s biggest undertaking has been to bring watchmaking back to Britain with a 35,000 sq ft wing-shaped facility in Henley-on-Thames that opened in 2021 and is reported to have cost the company £20mn. Now it has hired headhunters Egon Zehnder to help find a chief executive who can help the company’s global expansion.

Ackman has made several venture investments with his own funds and money from his family foundation, including in South Korean ecommerce company Coupang and Winner’s Alliance, a subsidiary of the Professional Tennis Players Association co-founded by Novak Djokovic.

Ackman said that he has one golden rule when it comes to personal investments: “If it takes more than 15 minutes, I won’t do it,” he said. “Investing in great companies is my version of art collecting.”

Treasury Secretary says the Federal Reserve would likely not agree to such a scheme

LUSAKA, Zambia—Treasury Secretary Janet Yellen said the Federal Reserve likely wouldn’t accept a $1 trillion platinum coin if the Biden administration tried to mint one to avoid breaching the debt limit, dismissing an idea that has been floated to circumvent Congress on the issue.

Some Biden administration officials and Democrats on Capitol Hill have discussed the possibility that the Treasury could use an obscure law authorizing platinum coins in the event of a potential default. Under the proposed scheme, the Treasury would mint a $1 trillion coin and deposit it at the Fed, and then draw the money to pay the country’s bills.

Ms. Yellen, who is a former chair of the Fed and meets regularly with current Fed chair Jerome Powell, said the central bank may not go along with such a plan. Fed officials have previously raised concerns about being relied upon to resolve fiscal debates in Congress.

“It truly is not by any means to be taken as a given that the Fed would do it, and I think especially with something that’s a gimmick,” she said in a Sunday interview with The Wall Street Journal onboard an Air Force plane traveling to Lusaka, Zambia, where she is traveling as part of a multicountry tour to bolster U.S.-Africa ties. “The Fed is not required to accept it, there’s no requirement on the part of the Fed. It’s up to them what to do.”

A spokeswoman for the Fed declined to comment.

Ms. Yellen’s comments come as Congress gears up for a difficult battle over raising the roughly $31.4 trillion debt limit. House Republicans, newly in control of the chamber, are pushing for Democrats to agree to unspecified spending cuts in exchange for authorizing more debt. Democrats, who control the White House and Senate, have rejected that trade, calling for Congress to raise or suspend the debt limit on its own.

The Treasury Department last week began using so-called extraordinary measures to manage the government’s cash flow as the U.S. neared the debt limit. Those measures are expected to give the Treasury the ability to pay all of the nation’s obligations to bondholders, Social Security recipients and others on time for at least five more months.

The impasse between Republicans and Democrats over raising the debt limit has renewed interest in both parties about what contingency steps the Treasury could take if Congress fails to raise the debt ceiling. Another such idea, floated by Republicans, is that the Treasury could prioritize payments on the debt if it can no longer borrow enough funds to cover all of the nation’s bills.

While Treasury and Fed officials in 2011 discussed a plan to make on-time payments on Treasury debt and delay paying other government bills if no deal was reached on the debt ceiling, Ms. Yellen said that such a plan may still not be feasible. She said earlier that Treasury’s systems weren’t built to prioritize certain payments over others.

“You should not assume it’s operational and feasible to prioritize,” she said. Ms. Yellen doesn’t want to clearly state whether the Treasury would prioritize interest payments, according to a senior Treasury official, as some Republicans view prioritization as a way to reduce the stakes of a potential debt-ceiling default.

“Even the prioritization of interest in debt I think it’s fair to say is not a foolproof way by any stretch of the imagination for avoiding economic and financial bedlam,” she said Sunday.

UK electricity network operator has emergency coal-fired plants warm up on expectations of tight supply and demand

Britain’s electricity system operator will pay households to use less power during early Monday evening and has also put three emergency coal-fired power units on standby as large parts of the country are gripped by freezing weather.

National Grid said on Sunday that it would activate a new service introduced this winter, through which households and businesses are paid to reduce their consumption during crunch times when the electricity grid comes under strain.

The so-called “demand flexibility service” will be activated between 5pm and 6pm on Monday, National Grid said, warning that its forecasts “show electricity supply margins are expected to be tighter than normal on Monday evening”.

If activated, it would mark the first time the new service has been used in a “live” situation, although National Grid has tested it multiple times with participating suppliers, including Octopus Energy, Centrica and Eon. Households with smart meters have been able sign up to the service if their supplier is taking part.

The electricity system operator has also asked two coal-fired units at the giant Drax power station in Yorkshire, plus a third at the West Burton plant in Nottinghamshire, to warm up in case they too are required to help meet demand on Monday, when wind speeds are also forecast to be low.

All three coal units had originally been due to close permanently in September last year but have negotiated contracts with National Grid to remain on standby for emergency use this winter at the request of the UK government.

Both the coal plant extensions and the demand flexibility service are part of the government’s contingency plans for possible energy shortages, which were drawn up after Russia’s full-scale invasion of Ukraine triggered fears of possible blackouts across Europe.

National Grid insisted on Sunday evening that the measures did not mean there would be power cuts but said they could be used to increase the cushion between electricity supplies and demand to a more comfortable level.

“This does not mean electricity supplies are at risk and people should not be worried,” National Grid ESO, the part of the FTSE 100 energy group that oversees Britain’s electricity system, said. “These are precautionary measures to maintain the buffer of spare capacity we need.”

Energy consultancy EnAppSys said power prices for peak hours on Monday indicated tight margins between supply and demand but they were “not as bad as previous days this winter when [National Grid ESO] chose not to dispatch contingency coal plants”. It added in a tweet that the decision to warm the coal-fired units showed an “abundance of caution” on National Grid’s behalf.

The Met Office has warned that southern, eastern and central England will continue to experience very cold temperatures on Monday and it has issued a weather warning for freezing fog earlier in the day, which could cause travel disruption including possible flight cancellations.

National Grid in December put some emergency-use coal units on alert during a previous cold snap, only to stand them down when it managed to secure sufficient supplies. It also did the same with the demand flexibility service in November.

Traders had recently been more optimistic that Europe would be able to survive the winter without blackouts after unseasonably warm weather over the festive season and early in the new year allowed countries in the EU to generally refill their gas storage facilities rather than withdraw from them. This is also relevant to Britain as it traditionally relies on electricity and gas imports from the continent during particularly cold periods.

While the iPad Pro lineup has gotten a few minor revisions recently, things have largely stayed the same since the current-generation design language was introduced in 2018. According to a new report, however, this could be about to change as Apple readies a “major iPad Pro revamp” for next year…

‘Major iPad Pro revamp’ slated for next year

In the latest edition of his Power On newsletter, Bloomberg’s Mark Gurman reports that this year is going to be a “light year” for the iPad lineup. Gurman says that we shouldn’t expect “anything of note” for the iPad Pro,” nor are any “major updates” coming to the entry-level iPad, the iPad mini, or the iPad Air.

Looking ahead to 2024, however, things get more exciting. Gurman reports that Apple is readying a “major revamp for the iPad Pro” that could debut in the spring. This revamp should offer an “updated design” as well as an upgrade to OLED displays for the first time.

Gurman reports:

As for what this new iPad Pro might look like, we’ve heard a few different rumors recently. Reports have suggested Apple could update the iPad Pro design to use a glass back, instead of the current aluminum unibody design. Apple has also considered bringing MagSafe charging to the iPad Pro lineup, similar to the MagSafe technology used on the iPhone.

This also isn’t the first time we’ve heard of Apple’s goal to transition the iPad Pro to OLED displays as soon as next year. Analyst Ross Young recently reported that the first iPad Pro with OLED is on track to debut in 2024 alongside a MacBook Air with OLED.

There have also been reports that Apple is considering expanding the iPad lineup to larger screen sizes, such as 14 inches or even 16 inches. Whether or not these new screen sizes will debut as part of this iPad Pro overhaul is unclear.

As Apple advances towards its targeted spring 2024 launch for the new iPad Pro, we expect additional leaks to emerge. In the meantime, what are your best guesses on what’s coming with this iPad Pro revamp? Share with us down in the comments.

The takeovers of Tiffany and Twitter reveal vast differences between the businessmen

Both Bernard Arnault, newly crowned the world’s richest person, and Elon Musk, his predecessor at the top, have overpaid for acquisitions and then regretted it. But what happened next reveals their vast differences as businessmen.

In short, Arnault is a savvy and clever dealmaker who has built his Paris-based LVMH into a luxury-brand behemoth, worth more than $400bn, and his own fortune to more than $180bn. By contrast, Musk’s poor judgment when it comes to doing deals has cost him billions although he still commands a net worth of more than $130bn.

Let’s compare each man’s last big deal. In November 2019, Arnault’s LVMH agreed to pay $135 per share, or $16.2bn for Tiffany & Co, the crown jewel of American luxury. The agreement followed by a few weeks LVMH’s $120-a-share unsolicited offer for Tiffany. It was nearly a perfect fit with LVMH and Arnault decided he had to have it, after he lost previous battles to acquire both Gucci and Hermès.

The purchase price was a hefty 37 per cent premium to where Tiffany’s stock was trading before the deal was announced and the value of the deal, including net debt, was nearly 17 times Tiffany’s earnings before interest, tax, depreciation and amortisation. When the Covid-19 pandemic hit four months later, though, the pricey Tiffany acquisition did not look so smart. Arnault started backtracking. After a back and forth between the parties, duelling lawsuits were filed in Delaware.

But then cooler heads prevailed. In October 2020, the two sides re-cut the deal. Arnault agreed to pay $15.8bn for Tiffany, a saving of a rather modest $420mn. It was clearly a face-saving measure for Arnault. When the Tiffany deal closed, in January 2021, Arnault axed Tiffany’s top executives, including its chief executive, its chief artistic director and its chief brand director and installed his own team, including one of his sons, Alexandre, as executive vice-president of product and communications. Tiffany’s employee numbers are still around the 14,000 level at the time of the buyout.

If any of this sounds familiar to Musk’s 2022 assault on Twitter, it should. After building a 9.2 per cent stake in the company, Musk last April made an unsolicited offer to buy Twitter for $54.20 a share, or $44bn. His offer was a 38 per cent premium to where the stock had been trading and a whopping 44 times Twitter’s ebitda. Given the huge price, the Twitter board of directors had little choice but to accept it.

Nearly immediately, Musk had buyer’s remorse. He tried nearly everything to get out of the deal. Like Arnault and Tiffany, the two sides took their dispute to the Delaware courts. But as the evidence began trickling out, in the form of damning emails, texts and documents, the prospects of Musk’s court case seemed dim. He tried, unsuccessfully, to cut a new deal with the Twitter board. But it refused to budge. Musk agreed to close the Twitter deal in late October at his original $44bn price.

Then all hell broke out. Musk quickly dispensed with Twitter management and then more than half of its 7,500-person workforce. He alienated advertisers and many users with erratic tweets and botched product changes. Musk has warned Twitter is losing $4mn a day and the company might have to file for bankruptcy.

If he has a master plan for Twitter, it is not clear what it is. Musk’s inexplicable flailings have eroded a considerable amount of the $31bn of equity he and his partners invested in the Twitter deal and some of the value of the $13bn of debt held by Twitter’s Wall Street banks.

Meanwhile, over at Tesla, the source of much of Musk’s wealth, shares in the electric vehicle company have plunged. Part of this is due to a wider sell-off in tech and growth stocks. But Musk’s preoccupation with Twitter and the management dramas at the social network has also spooked some Tesla investors. The Tesla stock lost 70 per cent of its value in 2022. According to Bloomberg, Musk’s fortune has declined about $130bn from a 2022 peak last April. All in all, the Twitter deal is clearly a self-inflicted disaster.

Meanwhile, the Tiffany deal has turned into a smashing success. The demand for luxury goods remains robust as does Arnault’s deft touch with them. At the LVMH annual meeting in 2022, Arnault called bringing Tiffany into LVMH “the highlight of the year” given its outstanding financial performance, including higher revenue, profits, and cash flow. At the 2022 annual meeting Arnault boasted that if Tiffany were still a public company, its share price would be double what LVMH paid. Arnault has been called the Sun Tzu of Luxury. It’s not hard to see why.

- It is too early to tell if the ECB could slow down the pace of its rate increases by the summer 2023

- At some point, of course, the risks surrounding the inflation outlook will become more balanced; That would also be a time in which we could make a further step down from 50bps to 25bps, for instance. But we are still far away from that

Sharp about-turn in sentiment comes as IMF indicates it will upgrade its global economic forecasts

The eurozone will avoid a recession this year according to a widely-watched survey of economists which illustrates the sharp about-turn in global economic sentiment in the past couple of weeks.

As recently as last month, analysts surveyed by Consensus Economics were predicting the bloc would plunge into recession this year. But this month’s survey found that they now expect it to log growth of 0.1 per cent over the course of 2023. This is thanks to lower energy prices, bumper government support and the earlier-than-anticipated reopening of the Chinese economy, which is set to boost global demand.

The upgrade comes after officials and business leaders at this week’s annual World Economic Forum in Davos also embraced a more upbeat outlook, and the IMF signalled that it would soon upgrade its forecasts for global growth.

Economists had feared that Europe would be among the hardest-hit areas of the global economy this year due to its exposure to the economic consequences of Russia’s war with Ukraine. Just weeks ago IMF managing director Kristalina Georgieva said that “half of the European Union will be in a recession” during 2023.

Carsten Brzeski, head of macro research at ING Bank, described the about-turn in economists’ forecasts as “a recession that never came”.

Susannah Streeter, analyst at Hargreaves Lansdown, said: “The threat of the feared energy crisis [is] retreating, and inflation [is] climbing down more rapidly than expected.”

“Our perceptions have changed quite radically since October,” said Andrew Kenningham, chief Europe economist at Capital Economics, adding government support had been more generous than expected, while the auto sector has rebounded more strongly than predicted.

There is now less than a 30 per cent chance of a recession, down from the an estimated 90 per cent last summer, according to Anna Titareva, economist at UBS. She said that the easing of supply chain disruptions, a strong labour market and excess savings explain the eurozone’s economic resilience, and Europe has been successful in filling its gas storage in recent months, which has greatly reduced fears of gas rationing.

The recent sharp fall in wholesale gas prices back to levels last seen before Russia’s invasion of Ukraine has also helped boost the economic outlook. JPMorgan this week raised its 2023 eurozone GDP forecast to 0.5 per cent after anticipating natural gas prices would be about €76 per megawatt hour, rather than its previous expectation of €155.

Speaking at Davos this week Christine Lagarde, president of the European Central Bank, said the economic prognosis was looking “a lot better” than feared. Gita Gopinath, the IMF’s deputy managing director, said China’s decision last month to ease Covid-19 restrictions was one reason why the fund had become more optimistic.

Sven Jari Stehn, economist at Goldman Sachs, said firmer demand in China would “boost European trade significantly, especially in Germany”.

German chancellor Olaf Scholz said this week he was “convinced” Europe’s largest economy would not fall into a recession. Banque de France governor François Villeroy de Galhau said: “For Europe, we should avoid a recession this year, which I wouldn’t have said with such confidence three months ago.”

Some economists do still expect a recession. Silvia Ardagna, economist at Barclays Bank, said that while the downturn would not be as deep as previously thought, the eurozone economy would still contract for two successive quarters — meeting the technical definition of a recession.

Kenningham warned aggressive rate increases by the ECB could lead to a weak recovery.

Lagarde signalled in Davos the ECB would raise rates by 50 basis points at its February and March meetings. The deposit rate has already increased by 2.5 percentage points to 2 per cent since June last year, a pace of tightening that eurozone economies have not experienced before.

“The eurozone economy may avoid a recession but interest rates may need to stay high for a prolonged period,” said Kenningham. “It looks like we may get — at worst — a mild recession, but that will be followed by a weak recovery.”