Saturday 20 January 2018

Fear deepens for eurozone's economy as growth stalls

New survey data reveals drop in consumer and investor confidence across Europe amid evidence of slowdown

Ireland's PMI soars
Ireland's PMI soars

Thomas Molloy

THERE was further evidence of a significant slowdown in Europe's economy yesterday as surveys suggested the eurozone's economy is not going to grow at all this quarter and other surveys showed waning consumer and investor confidence.

Preliminary purchasing managers' indexes (PMIs) in the eurozone showed the area's economy stagnating for a second month as readings hovered at a two-year low.

"There is a weakness in the core countries, Germany in particular. The eurozone is losing its main motor of growth," said Chris Williamson at data provider Markit, which compiles the PMIs.

The eurozone's services PMI edged down to 51.5 this month from 51.6 in July, hitting its lowest level since September 2009. The index, which measures firms ranging from restaurants to banks, has stayed above the 50 mark that divides growth from contraction for two years. But some of August's growth was driven by firms fulfiling old orders.

Meanwhile, the PMI for the eurozone's manufacturing sector slid to 49.7 -- its first sub-50 reading since September 2009 -- from 50.4.

In a negative sign for the future, new export orders for manufacturers sank to 47.4 in August, the lowest since June 2009, from 49.2 in the previous month.

"There is the dual whammy of the global cycle turning down and at the same time the domestic market being hit by concerns about the debt crisis and biting austerity measures in neighbouring countries," Mr Williamson said.

A separate survey from the European Commission showed consumer confidence weakened more than economists forecast this month as growth in the euro region slowed and the sovereign debt crisis raged.

An index of household sentiment in the euro area fell to a 12-month low of minus 16.6 from minus 11.2 in July, the commission said in an initial estimate.


Another index of economic sentiment, this time from Germany, indicated the slowdown was spreading beyond indebted members of the eurozone's periphery and taking root in core members.

German analyst and investor sentiment fell much more than expected in August, tumbling to minus 37.6, the lowest since December 2008, from minus 15.1 in July. It was the biggest one-month drop in five years.

"The data supports our view that the most likely scenario for the economic cycle going forward remains a growth pause until the end of the year.

"A recession is less likely, but risks stemming from a further fall in business and consumer confidence are considerable," said Christian Schulz, an analyst at Berenberg Bank.

On the other side of the world, a purchasing managers' index for China, which previews the country's factory output before official data is released, edged up to 49.8 in August from July's final reading of 49.3, but remained below the crucial 50.

Although the numbers indicated a slowdown of China's growth from the previous month, the Chinese economy is still expanding strongly on a year-on-year basis and the August PMI was consistent with manufacturing growth of around 13pc a year earlier.

"We maintain our forecast of a soft landing in growth for China," said Ting Lu, economist at Bank of America-Merrill Lynch. He predicted China's economic growth would ease to around 9pc in the second half of 2011 from 9.6pc in the first half.

Irish Independent

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