Euro area not hurt by Brexit

The eurozone economy has remained surprising resilient to the shock of Britain’s vote to leave the EU, fresh data showed yesterday, in contrast to the UK where signs of widespread economic pain are already apparent.

Eurozone economic sentiment improved this month, defying expectations for a decline, and German unemployment fell more than anticipated, supporting views the bloc has so far shrugged off the impact of Brexit.

Still, Europe is unlikely to escape unscathed, economists argue. Export, investment and sentiment are likely to take at least a moderate hit in coming months as firms come to grip with the reality that Brexit in one form or another is irreversible.

“The stability/resilience in the euro area was broad-based across sectors in July and there is also nothing in the detail to suggest increased concern about the future,” JPMorgan economist Greg Fuzesi said.

“It is too early to draw strong implications for our growth forecast, but the initial news is certainly better than expected.”

Eurozone sentiment improved in industry, services, retail and the construction sector while the business climate index, pointing to the phase of the business cycle, also increased sharply.

Forward-looking indicators were also solid, particularly for employment and services, even as manufacturing expectations dipped, reversing some of the previous month’s big gain.

Rebounding after a second weak quarter, Germany is again expected to be the engine of eurozone growth, preserving momentum at least for now.

“Employment growth is robust and is set to stay high according to the latest sentiment indicators,” HSBC economist Rainer Sartoris said.

“This view is supported by the number of unfilled positions, which keep on rising. The high demand for labour should continue to support wage growth, which will continue to support private consumption.”

Such an upbeat outlook is in contrast with data out of Britain, where sentiment plunged this month, with consumer confidence taking the biggest hit and losses recorded across all sectors.

The figures come on top of already grim reading in recent days, which suggest Britain may struggle to stave off a recession.

UK retailers suffered their sharpest fall in sales in four years, while the purchasing managers index fell by the most in its 20-year history.