Euro­zone econ­omy has ‘hit a speed bump’: ECB sur­vey

Kuwait Times - - BUSINESS -

Eco­nomic ac­tiv­ity across the 19-coun­try euro­zone cooled slightly in July as the re­gion strug­gled to keep up the fast pace of its re­cent up­turn, ac­cord­ing to a sur­vey that is closely mon­i­tored by the Euro­pean Cen­tral Bank. Fi­nan­cial in­for­ma­tion firm IHS Markit said yes­ter­day that its head­line pur­chas­ing man­agers’ in­dex for the re­gion fell to a six-month low of 55.8 points in July from 56.3 the pre­vi­ous month.

De­spite the mod­est re­treat, the in­di­ca­tor pointed to one of the strong­est ex­pan­sions seen in the past six years, with quar­terly growth at a still-healthy 0.6 per­cent, down slightly from the 0.7 per­cent sig­naled for the sec­ond quar­ter. Of­fi­cial sec­ond-quar­ter fig­ures are due at the start of Au­gust and are ex­pected to show that the euro­zone at least matched the 0.6 per­cent growth recorded in the first three months of the year.

A run of eco­nomic news re­cently has pointed to a pick-up in growth across the euro­zone coun­tries amid ris­ing con­fi­dence in the re­gion’s out­look fol­low­ing a se­ries of elec­tions that saw pop­ulist politi­cians de­feated.

Chris Wil­liamson, the firm’s chief busi­ness econ­o­mist, says it’s “too early to know for sure whether the econ­omy has merely hit a speed bump or whether the up­turn is al­ready start­ing to fade.” The ev­i­dence, he says, “points to the for­mer,” with the econ­omy “hit­ting bot­tle­necks due to the speed of the re­cent up­turn.”

He noted that for­ward-look­ing in­di­ca­tors, such as new or­der in­flows, sug­gest fur­ther ro­bust growth in com­ing months. As a re­sult, job cre­ation is “boom­ing” as com­pa­nies seek to ex­pand ca­pac­ity to meet the de­mand. The sur­vey is likely to in­form the ECB’s de­lib­er­a­tions as it mulls when to start rein­ing back its mon­e­tary stim­u­lus. Last week, ECB Pres­i­dent Mario Draghi sought to be neu­tral, wor­ried that any in­di­ca­tion of any change of course could lead to the euro cur­rency surg­ing. More clar­ity is ex­pected in the au­tumn.

Much will de­pend on the in­fla­tion out­look. The chief pur­pose be­hind the ECB’s stim­u­lus ef­forts, which has in­volved slash­ing in­ter­est rates and buy­ing 60 bil­lion eu­ros ($69 bil­lion) a month in bonds at least through the end of the year, is to stoke price pres­sures in the econ­omy to get in­fla­tion up to its goal of just be­low 2 per­cent. In the year to June, the annual rate of in­fla­tion was 1.3 per­cent.

Mon­day’s sur­vey sug­gested that in­fla­tion pres­sures eased in July, which may re­in­force Draghi’s be­lief that there isn’t “any con­vinc­ing sign of a pickup in in­fla­tion.” The ECB meets next to de­cide on pol­icy on Sept 8. — AP

Cus­tomers en­ter and leave the Sears store in St. Eus­tache, Que­bec. Dozens of Sears stores across the coun­try des­tined for clo­sure be­gan liq­ui­da­tion sales yes­ter­day.

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