Euro-Area Economy Cools Further in Sign Peak Growth Has Passed

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  • Euro-Area Economy Cools Further in Sign Peak Growth Has Passed

Euro-area economic momentum slowed to the weakest level in more than a year, adding to warning signs that the region’s upswing has passed its peak.

A composite Purchasing Managers’ Index dropped nearly two points in March, the most since 2012, when the 19-nation bloc was mired in recession. Growth in manufacturing cooled to an eight-month low last month, and sluggish orders in the region’s largest economy suggest there’s little additional strengthening in store.

After the fastest growth in a decade last year, companies in the 19-nation euro area are running into constraints that threaten to moderate the expansion. While that complicates the European Central Bank’s job as it judges when to pare back stimulus, the region’s revival is far from over.

“Some pull-back from the elevated level of the PMI at the start of the year was always highly likely,” said Chris Williamson, chief business economist at IHS Markit. He said the gauge still points toward an “impressive” quarterly rate of expansion of 0.6 percent, adding that the weaker data generally reflect fewer companies reporting improvements in business, rather than more firms pointing to deteriorating conditions.

Policy makers at the ECB have said they’re increasingly confident that inflation will eventually pick up along with the region’s broad economic upturn. Officials are discussing when and how to withdraw extraordinary support, and are expected to wind down asset purchases after September.

A decision is unlikely to come at the next Governing Council meeting on April 26, particularly because officials need to gauge whether temporary factors such as bad weather and short-term constraints contributed to the loss in momentum.

“It is too early to gauge whether this loss of momentum is the beginning of a solid downward trend or just some correction from levels that were too optimistic,” Apolline Menut, an economist at Barclays, said in a note.

Recent Reports

Confidence among euro-area businesses and investors slipped in March after industrial production and construction declined at the start of the year.

Separate reports on Thursday showed that retail sales in the region and German factory orders rose less than economists forecast, while cold temperatures and heavy snow battered economic activity in the U.K.

“Gauging the true extent of any slowdown is consequently difficult,” IHS Markit’s Williamson said. The next survey round “will therefore be particularly important in ascertaining true underlying growth momentum and in providing a steer on the likely timing of any ECB policy changes.”

About the Author

Samed Olukoya
Samed Olukoya is the CEO/Founder of investorsking.com, a digital business media, with over 10 years' experience as a foreign exchange research analyst and trader. A graduate of University of East London, U.K. and a vivid financial markets analyst.

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