Eurozone business boom eases but growth up
According to ECB’s economic bulletin, bloc may outperform expectations in near term
Eurozone businesses rounded off the first quarter of 2018 with their slowest growth in over a year — and much weaker than expected — as new business took another hit from a stubbornly strong euro, a survey showed.
The Eurozone’s economic boom had already paused in February and a Reuters poll earlier this month said growth had peaked, in news that may concern the European Central Bank as it looks to move away from an ultra-loose monetary policy.
There is also a risk the slowdown could be widespread as growth rates in Germany and France both eased back this month, according to IHS Markit’s Flash Purchasing Managers’ surveys, with German business confidence waning.
Global growth has been strong so far this year. But political uncertainty and the threat of trade skirmishes after the United States imposed tariffs on trade and aluminium imports means a slowdown may not be far away.
Borrowing costs
Yet that didn’t deter the US Federal Reserve from raising interest rates again on Wednesday and forecasting at least two more hikes this year. The ECB isn’t expected to increase borrowing costs until next year.
According to the ECB’s regular economic bulletin published yesterday, the Eurozone economy is enjoying robust growth and may even outperform expectations in the near term. That in turn has pushed up the euro against the dollar.
“Fed policy tightening should stem upward pressure on the euro this year while a modest fiscal boost and an easing of fears about protectionism should help to support the German economy in particular over the quarters ahead,” said Jennifer McKeown at Capital Economics.
While the Eurozone’s racing economy may have taken its feet off the pedals, growth remained strong.
The flash composite PMI, seen as a good guide to economic health, remained comfortably above the 50 mark that divides growth from contraction.
IHS Markit said the data pointed to robust first-quarter GDP (gross domestic product) growth of 0.7 per cent, a touch faster than the 0.6 per cent rate predicted in a Reuters poll.
However, the indicator did slump to 55.3 this month, far below all forecasts in a Reuters poll which had predicted a more modest dip to 56.7 from February’s final reading of 57.1.