independent

Wednesday 16 April 2014

Gap between eurozone's 'big two' is widening

French firms struggling while Germany prospers, survey shows

uropean Central Bank (ECB) President Mario Draghi. Photo: Reuters

THE schism dividing the eurozone's strong and weak economies deepened to include its core pairing in February as French firms suffered their worst month in four years in stark contrast to prospering Germany.

The gap between the two biggest economies in the eurozone is now at its widest since purchasing manager surveys (PMIs) started in 1998, the latest sounding showed yesterday.

It dealt a blow to hopes the eurozone might emerge from recession soon, showing the downturn across the region's businesses worsened unexpectedly this month.

The latest PMIs also suggest that the "positive contagion" across financial markets noted by ECB president Mario Draghi (pictured) in January may take a long time to filter through to the real economy.

"The improvement in the financial markets will not be enough on its own to kickstart an economic recovery," said Ben May at Capital Economics.

While businesses in Germany sustained a healthy rate of growth, French services companies fell into their worst slump since the nadir of the great recession in early 2009.

The PMIs poll thousands of companies each month and are firmly at odds with the upbeat mood on financial markets and improving investor confidence, suggesting the real economy is failing to improve behind a sheen of optimism.

Survey compiler Markit said the French data was more befitting of a struggling peripheral eurozone economy such as Spain or Italy, rather than a key growth engine with Germany.

"There are issues in the French economy which are being unmasked by the depth and severity of this crisis," said Peter Dixon, global equities economist at Commerzbank.

Frightening

He said France has major structural problems, and business activity may have been crimped by confusion over the government's economic policies.

"That may well have been frightening the horses when it comes to businesses."

Markit said the latest PMIs pointed to the eurozone economy shrinking 0.2-0.3pc in the first quarter, following an estimated 0.4pc contraction at the end of last year.

In the Netherlands, consumer confidence fell to its lowest level since records began, unemployment reached its highest in around 16 years, and house prices showed the strongest annual drop since 1995.

In contrast to France and the Netherlands, Germany has enjoyed a good start to the year.

German investor morale soared to its highest level in nearly three years this month, while the statistics office said on Tuesday that employment rose to a high since reunification in the fourth quarter. (Reuters)

Irish Independent

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