Business World

Tuesday 21 August 2018

Signs euro area growth has already peaked

Potsdamer Platz, the financial district of Berlin in Germany – business confidence in the country fell for a fifth consecutive month in April to reach the lowest level in more than a year
Potsdamer Platz, the financial district of Berlin in Germany – business confidence in the country fell for a fifth consecutive month in April to reach the lowest level in more than a year

Michael Nienaber

Business morale in Germany, France and Italy - the eurozone's three biggest economies - deteriorated in April as a stronger currency and capacity constraints limited output, signalling that growth in the currency bloc has reached its peak.

The eurozone was unexpectedly one of the best performers among major economies last year. But surveys suggest that growth has steadily slowed since January on euro strength and fears of a trade war between China and the United States.

German business confidence fell for a fifth consecutive month in April to reach the lowest level in more than a year, the Ifo institute said on Tuesday, suggesting that Europe's biggest economy is losing some steam.

"High spirits among German businesses have evaporated," Ifo chief Clemens Fuest said. "The German economy is slowing down."

The Munich-based Ifo institute said its new business climate index, which for the first time incorporated responses from the services sector, fell to 102.1 from 103.3 in March.

Data from France's national statistics body on Tuesday showed that industrial morale there dropped to 109 points in April, down from a revised figure of 110 points for March.

In Italy, the euro zone's third largest economy, morale among businesses also fell amid political stalemate in the wake of inconclusive national elections seven weeks ago.

Oliver Rakau from Oxford Economics said the surveys put the expected bounce-back of growth in the second quarter into question after a soft patch at the start of the year.

"Combined with risks to the export outlook from rising trade tensions, the eurozone economy looks to be clearly past its growth peak," Rakau added.

Meanwhile, the governor of the Bank of France, Francois Villeroy de Galhau, said on Tuesday that uncertainty around US trade tariffs was already hurting investment in the global economy and could do serious damage to world growth.

Brexit was also a worry, he said.

"We are all aware that an escalation of protectionist threats from the United States would dampen growth everywhere," Mr Villeroy de Galhau, said at the City Week banking conference in London.

"The recent uncertainty is probably already having some negative effects on investment: you saw it in the British economy since the Brexit vote in 2016. And real tariffs would hurt more."

At the same event Valdis Dombrovskis, the EU's Financial Services Commissioner told British bankers that he'd prefer to see the UK "equivalence' rules" rather passporting rights for banks after Brexit, something that would give Brussels more control. (Reuters)

Irish Independent

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