Growth outlook may be slowing amid concerns over US trade

Growth outlook may be slowing amid concerns over US trade

Jonathan Cable

Eurozone business growth slowed more than expected this month as fears over a trade war with the US and a weaker global expansion put another dent in optimism, a survey showed.

But growth remained robust and as it was accompanied by rising prices the survey is unlikely to concern policymakers at the ECB too much as they look to move away from their ultra-loose monetary policy.

IHS Markit’s Euro Zone Composite Flash Purchasing Managers’ Index (PMI), seen as a good guide to economic health, dipped in July to 54.3 from June’s 54.9, coming in below all forecasts.

Anything above 50 indicates growth. If maintained, the latest PMIs point to third quarter economic growth of 0.4% in the eurozone, IHS Markit said.

That is slightly weaker than the 0.5% predicted in a Reuters poll last week.

“July’s fall in the eurozone PMI comes as something of a disappointment but the index is still consistent with a decent pace of GDP growth,” said Jessica Hinds at Capital Economics.

“All in all, today’s data are unlikely to deter the ECB from normalising policy but the process is likely to be extremely gradual,” she said.

The ECB guided markets for steady rates “through the summer” of 2019 at its meeting last month, when it also announced it would shut a €2.6tn bond-buying programme in December, ending its unprecedented stimulus scheme.

Germany’s private sector grew faster than expected in July, earlier figures showed, but French business growth eased more than predicted. France and Germany are the only two eurozone members to have flash numbers.

Fears that trade conflict around the world is worsening have damaged confidence. The future output index, which gauges optimism, fell to 63 from 63.4, its lowest since late 2016.

“In July we have seen a big increase in the number of companies reporting they are worried about global economic growth and the impact of trade wars escalating,” Chris Williamson at survey compiler IHS Markit said.

The US has imposed tariffs on some Chinese imports, while threatening more, and President Donald Trump has called the EU a trade foe.

“With the risk of a full-blown trade war increasing steadily, there is no reason to expect any sustained improvements in export orders and industry confidence over the next months,” said Moritz Degler at Oxford Economics.

Reuters

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