Business World

Monday 27 January 2020

Growth in manufacturing and services slows in EU

Fiscal crisis in eurozone feeds back to damage confidence

Simone Meier

GROWTH in Europe's services and manufacturing industries slowed more than economists had forecast in May, suggesting that the euro-region economy may struggle to gather strength as the fiscal crisis continues to damage confidence.

A composite index based on a survey of euro-area purchasing managers in both industries fell to 56.2 from 57.3 in April, London-based Markit Economics said.

Economists forecast a drop to 57.2, the median of 15 estimates in a Bloomberg survey. Above 50 indicates expansion.

European companies may be forced to rely on a weaker euro to bolster exports after Greece's fiscal crisis hurt consumer confidence and forced policymakers to pledge a rescue package worth €750bn.

German business confidence unexpectedly fell this month, the Ifo institute said today.

BMW chief Norbert Reithofer said on May 18 that the "crisis is not over yet."

Eoin O'Callaghan, an economist at BNP Paribas in London, said: "This will likely add to fears that the recent negative tone in the financial markets is starting to feed back on the economic recovery.

"As the most cyclical industry which has recovered at the fastest pace, it is perhaps inevitable that manufacturing is experiencing the most pronounced interruption to its rise this month."

A gauge of euro-area manufacturing fell to 55.9 from 57.6 in the previous month, Markit said in yesterday's report.

That is the first decline since February 2009. An index of services, which account for about 60pc of the region's gross domestic product, rose to 56 in May from 55.6.

The euro was little changed against the dollar after the data, trading at $1.2580 at 3:09 p.m. in London, up 0.7pc on the day.

Double-dip recession

Greece received the first instalment of an EU aid package on May 18 after cutting its budget deficit by 42pc in the first four months of the year.

The package foresees the budget gap falling to 8.1pc of GDP this year from 13.6pc in 2009. Spain and Portugal this month announced additional spending cuts.

"I certainly foresee a double-dip recession," for Spain, Greece and Portugal, while "Germany and France are kind of on the knife edge," said Jay Bryson, a senior global economist at Wells Fargo Securities, in an interview with Bloomberg Television from London.

The euro has lost 13pc against the dollar this year amid concern the Greek crisis will spread to other nations. That is making exports more competitive just as the global economy gathers strength, led by Asian economies, including China.

ThyssenKrupp, Germany's largest steelmaker, said on May 12 that it expected sales to "stabilise" in the current fiscal year after returning to profit in the second quarter.

So far, however, any recovery remains too fragile for companies to start adding workers.

The European Commission has said that it expected euro-region unemployment to average 10.3pc this year, up from 9.4pc in 2009. (Bloomberg)

Irish Independent

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