Saturday 20 January 2018

Output data to shine spotlight 
on Europe's faltering recovery

The escalating conflicts in Ukraine and Iraq could be detrimental to the eurozone's economic growth
The escalating conflicts in Ukraine and Iraq could be detrimental to the eurozone's economic growth

John O'Donnell

THE week ahead is seen by investors as a key test of the strength of the eurozone's fragile economy as escalating conflicts in Ukraine and Iraq darken the mood globally.

On Thursday, the European Union will announce economic output data for all 18 countries in the eurozone including Ireland for the April-June period. Germany will reveal its own gross domestic product for the same period, while the CSO here will provide an update on import and exports in June.

While the economy here is growing, neither Germany nor the wider eurozone are expected to see much, if any, improvement. In contrast to the United States and Britain, which are growing strongly, economic output in the euro bloc is likely to have all but ground to a halt in the three months to June. Germany, is losing momentum and Italy is sliding back into recession.

"The United States and the United Kingdom are going to be among the fastest-growing economies both this year and next," said James Knightley, an economist with ING. "In Europe, the situation seems to be going into reverse."

The growing sanctions fight between Russia and the West over Moscow's backing of rebels in Ukraine and US air strikes to block Islamist militants in Iraq are also upsetting the markets.

To compound matters, tit-for-tat sanctions between Moscow and the European Union and fears that Russia could even invade eastern Ukraine are already sapping business confidence and will eat into paltry economic growth later this year.

Not only does Moscow supply about a third of the European Union's gas needs, trade ties in other areas between Russia and Europe run deep.

"For a long time, the market has been ignoring the geopolitical risks," said Gregor Eder, an economist with Allianz, one of the globe's largest fund investors.

"The escalation in Ukraine and a spiral of sanctions could be a turning point for that. Exports to Russia were already falling even before Ukraine and could fall further. The Iraq crisis increases nervousness further."

The United States has offered hope to investors, but they want to see growth is trickling down to workers' pay to be convinced a recovery is robust.

Irish Independent

Promoted Links

Business Newsletter

Read the leading stories from the world of Business.

Promoted Links

Also in Business