Tuesday 15 October 2019

Struggling eurozone just dodges recession

Bloc at stall speed as growth slows

Above water: A barge on the Rhine – Germany has managed to offset weak demand in the eurozone
Above water: A barge on the Rhine – Germany has managed to offset weak demand in the eurozone

David Chance

The 19-member eurozone currency bloc likely grew modestly in February even as manufacturing output stumbled, according to the latest economic data.

IHS Markit eurozone Composite PMI, which provides an accurate early estimate of how well economies are performing ahead of the release of official data, hit a three-month high of 51.4 as service industries expanded.

A reading above 50 indicates expansion, while one under 50 indicates contraction.

However, "the eurozone economy remained close to stagnation in February", said Chris Williamson, chief business economist at HIS Markit.

The Flash Eurozone Services PMI Activity Index hit a three-month high of 52.3 while the manufacturing output index hit a 69-month low of 49.2.

"Germany is on course to grow by 0.2pc, buoyed by its service sector, but France looks set to stagnate or even contract very slightly," said Mr Williamson. "The rest of the region is meanwhile suffering its worst spell since late-2013, with growth having slipped closer to stalling in February."

The rise in the composite PMI was the first gain in six months and, coming amid worries that the eurozone was slipping into recession after a run of poor economic data, at least provided some hope that the bloc was growing, albeit at a slow pace.

Risks to the European economy appear to be skewed to the downside. US President Donald Trump may hit car imports with tariffs - which would hurt Germany most - on top of a trade dispute between the United States and China, which has already hit global demand.

Germany has managed to offset weak demand in the eurozone with a surge in exports since the end of the financial crisis, and in the process accumulated one of the largest current account surpluses in the world, thanks in part to Chinese demand for its cars and machines.

Along with other major exporting economies, such as Japan and South Korea, that model is now in deep trouble as global demand cools.

Ireland is at risk from any global trade slowdown and from trade wars as exports of goods surged almost 15pc last year to €141bn while its goods account surplus was €51bn, up from €43bn a year ago.

The vulnerabilities of the euro area were highlighted when the European Central Bank released the minutes of its last policy meeting which showed officials were worried by the slowdown in the bloc.

The minutes confirmed that the ECB was looking at reinforcing some measures to bolster the economy, with the probable expansion of its so-called 'targeted longer-term refinancing operations' which aim to stimulate bank lending.

It also noted that inflation remained stuck at 1pc, despite rising numbers of people in work, contrary to its own earlier expectations.

Irish Independent

Also in Business