In World Economy News 02/08/2016
The eurozone’s manufacturing sector slowed in July, while Germany accounted for much of the growth that was recorded as activity declined in France, and edged toward stagnation in Spain and Italy, according to surveys of purchasing managers.
The slowdown across the eurozone as a whole likely reflects Britain’s June decision to leave the European Union, which created uncertainty about the strength of demand in the eurozone’s second-largest export market. An immediate consequence of the vote has been a depreciation of the pound’s exchange rate, which makes goods made in the eurozone more expensive for British buyers and is therefore likely to lead to a fall in demand.
“We expect the U.K. leave vote to dampen confidence in the months ahead, leaving bleak prospects for a stronger momentum in the manufacturing sector,” said Apolline Menut, an economist at Barclays.
But officials at the European Central Bank and other policy makers may be just as concerned by evidence that the modest economic recovery is becoming more lopsided, with Germany expanding more rapidly than other large economies. If sustained, that divergence would make it more difficult to find a monetary policy that suits both Germany and the rest of the currency area.
Data firm IHS Markit on Monday said its Purchasing Managers Index for the eurozone, which is based on a survey of 3,000 firms, fell to 52.0 from 52.8 in June. A reading above 50.0 indicates an expansion in activity, and a reading below that level a decline.
Most eurozone members recorded a decline in their national PMIs. That left Germany recording the strongest expansion at 53.8, and France experiencing a continued contraction at 48.6. The Italian measure was the lowest in 18 months, while Spani’s measure was the lowest in 31 months.
“Expansions in output and employment are clearly being driven to a large extent by surging growth in Germany, while growth has almost stalled in both Italy and Spain and contractions are being seen in France and Greece,” said Chris Williamson, IHS Markit’s chief economist.
Figures released Friday showed the eurozone economy slowed in the three months to June, having recorded a pickup in growth during the first quarter. National figures showed the French economy stalled while that of Spain slowed slightly but continued to record stronger growth than the currency area as a whole. Although figures weren’t available for Germany, many economists estimate it also grew more rapidly than the eurozone as a whole.
Widening divergence between the eurozone’s major economies could create fresh problems for the ECB as it considers whether to provide fresh stimulus to offset a negative effect from the U.K.’s Brexit vote. Recent stimulus measures have provoked widespread criticisms in Germany, reflecting complaints by savers who are seeing income from their investments fall, while there are also fears of fresh asset bubbles.
ECB President Mario Draghi last month signaled that policy makers are open to providing additional stimulus should the U.K. vote appear likely to throw its efforts to boost inflation off course, but said it was too early to judge whether that would be the case. A measure of sentiment released last week found that businesses became more upbeat about their prospects in the weeks immediately following the vote.
Source: Dow Jones
