The eurozone economy: unpleasant surprises in shops?


The eurozone’s impressive recovery is one of the unexpected events of 2017. Economists worry that this year may bring a less desirable surprise.
Sentiment and manufacturing data surveys suggest that first-quarter growth may be weaker than previously thought. With fears that the region’s rebound may have peaked and that trade tensions could further exacerbate the situation, forecasts have been revised downwards.
“The most important thing is that the acceleration of the eurozone economy has stopped,” said Florian Hense, an economist at Berenberg Bank. “We are not likely to see the kind of growth we see in the second half of 2018.”
Overall, the region grew by 2.3% in 2017, the fastest pace in a decade, with most of the increase in the last six months of the year.
The question is whether the subsequent slowdown is the result of one-off factors or the start of more serious structural changes. Much depends on Germany’s performance, which is the driving force of the eurozone economy, which is almost a third of the region’s economic output.
Last year, the eurozone’s manufacturing purchasing managers’ monthly survey – an important indicator of confidence – climbed. But that number has fallen since more than 60 points in December fell to below 57 in March. If the index falls below 50, it indicates contraction rather than expansion.
In Germany, because of concerns that Europe will face the United States and China trade tensions collateral damage caused by the march ZEW index is one of the country’s most closely watched economic sentiment indicator, in March fell to a five-year low.
German industrial production also fell in February in February, the largest than the previous month fell by 1.6%, and a seasonally adjusted, exports fell 3.2% in January from the biggest decline since August 2015.
Some economists argue that the main reason for the slowdown is short-term factors, such as German workers’ strikes in the now settled dispute, and the severe flu that affects tens of thousands of people.
Others see it as a natural retreat from very strong growth. Prepare the purchasing managers’ index of IHS Markit economist Chris Williamson said: “my intuition is that we will see in a more sustainable economic growth rate, although we still see the expansion of decent economic growth.”
Indeed, a bloomberg poll last week showed that economists’ growth forecasts had fallen this year, but only modestly, from 2.4% to 2.3%.
Last month the ECB predicted a 2.4% expansion this year, followed by 1.9%, 1.7% in 2019 and 2020.
KlausGunterDeutsch, economist at BDI, a business lobby in Germany, said: “the data shows orders falling slightly but at a high level. We still have only one layer below the sky. ”
However, some economists worry that there will be more structural factors, which could dampen future growth. Some argue that the slowdown may be due to a rapid recovery that has left German companies with little room to increase capacity. Many groups are trying to find skilled workers.
Chief economist at the German chemical industry trade body VCI Henrik Meincke said that although the industry of the company did not expect the economy suffered a setback, but many companies have ordered all orders – limiting the growth prospects.

Export markets have also become more challenging. JorgKramer, chief economist at commerzbank, points out that in the past 12 months, the euro has appreciated by as much as 7% against a basket of currencies, and the competitiveness of European goods has been hit.
Another factor is that the impact of the ECB’s quantitative easing may have begun to fade, as asset purchases have fallen from 80 billion euros a month in 2016 to 30 billion euros.
The European central bank’s key decision makers will hold the meeting on Thursday, to discuss whether the slowdown means they should reconsider its quantitative easing plan, and “quantitative easing” can keep to September, some people want to end this year.
Some ECB officials have already mentioned growth as “modest”, although Jens Weidmann, the bundesbank President and a hawkish member of the governing council, said on Friday that economic growth was still booming.
But almost all discussions about the future of the region’s economy are in the air, worrying about the damage caused by a trade war, especially between the United States and China.
Worryingly, trump comprehensive trade conflicts between the government and Beijing could damage the eurozone to trigger a number of ways of European manufacturers export market protectionism, confidence and disrupt global supply chains.
FrancoisVilleroy DE Galhau, President of the bank of France, warned last week that a string of problems could arise, including “protectionist threats, adverse exchange rates and sudden financial market adjustments”.
He called on policymakers to pay close attention to the risk of such a dangerous situation, which would require changes in monetary policy.
Some economists already expect the ECB to take longer to raise interest rates from their current lows.
Mr Kramer reckons that prices will rise only in the autumn, compared with the expected growth in mid-2019.
“The risk of major trade barriers will increase substantially,” Mr. Kramer said. That, he adds, is why he now expects “lower growth rates not only for the United States but also for the export-oriented German economy and the eurozone”.
The story has been updated to reflect a 2.3 per cent growth rate for the eurozone in 2017, rather than the previous 2.5 per cent, after the revised figures were released.


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