Tuesday 16 January 2018

Draghi optimistic eurozone is poised for recovery this year

Irish manufacturing contracted in May for the third consecutive month

Mario Draghi
Mario Draghi
John Mulligan

John Mulligan

ECONOMIES in Europe and the US remain under intense pressure, even though ECB boss Mario Draghi thinks the eurozone is poised for recovery this year.

Mr Draghi (pictured) sounded the optimistic note as key economic data from Europe and the US underscored continuing challenges.

The health of Ireland's economy also remains delicately balanced, with new figures to be released this morning showing the country's manufacturing sector contracted in May for the third successive month.

Data yesterday indicated that eurozone manufacturing output contracted less in May than initially estimated, leading economists to predict that the area's recession will end in the current quarter.

The gauge stood at 48.3 last month compared with 46.7 in April. Any figure below 50 indicates contraction and anything above, expansion.

"Although the euro-area manufacturing economy continued to contract in May, it is reassuring to see the rate of decline ease to such a marked extent," said Chris Williamson, chief economist at Markit, which released the data.

But stock markets around Europe fell yesterday as the International Monetary Fund slashed its expected growth rate for the German economy in 2013 to only 0.3pc from 0.6pc.

It said that uncertainty and recession in the rest of the euro area are making German companies more reticent in investing.

The IMF said the risk to Europe's biggest economy is "tilted to the downside" as global growth slows and financial stress in the region risks infiltrating Germany.

"A gradual pick-up in activity projected towards the end of the year is conditional on a further and tangible reduction in this uncertainty and a materialisation of the expected gradual recovery in the rest of the euro area," said the IMF.

In the United States, manufacturing contracted in May at the fastest rate in four years, dipping below the 50 mark on the index. Economists had expected a reading of 51.

Factory output has declined in the US since touching a two-year high in February, but depressed corporate spending and government cutbacks have been curtailing demand.

The Investec Purchasing Managers' Index for Ireland's manufacturing industry to be published this morning reveals that the growth rates recorded in the sector last year may not re-emerge for a number of months.

The index is a leading indicator of the strength of the overall economy. The headline PMI figure in Ireland for May was 49.7, showing the manufacturing sector shrank.

But Investec chief economist Philip O'Sullivan stressed that the contraction was far from considerable.

"While new orders remained in negative territory, with panellists noting a slowdown in both domestic and export markets, the contraction was only slight," he said.

Mr O'Sullivan said that while the May PMI figure showed contraction, the pace of decline was the slowest seen since the PMI figure had fallen below the 50 mark in March.

Manufacturing activity may be beginning to stabilise, he added.

Irish Independent

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