German manufacturing Signals Serious Growth Issue in Euro-Area

• German manufacturing Signals Serious Growth Issue in Euro-Area

Manufacturing activity of the largest economy in the Euro-area, Germany, contracted to its lowest level in seven years in March. Casting doubt on the region’s growth as investors are beginning to dump its assets for safe-haven.

The IHS Markit Purchasing Managers’ Index declined to 44.1 in March, lower than the 44.7 expected by most economists.

Weak global demand and trade uncertainty have plunged German factory output in recent months and continues to weigh on export sales and new orders as backlogs extend their decline.

Also, French manufacturing contracted to 49.7, still below the 50 divide that separates growth from contraction.

However, with manufacturing falling in the Euro-area’s two largest economies, the region is expected to lose more momentum now that emerging economies are likely to rebound given China positive manufacturing data and strong global commodity outlook.

Currently, the Euro-area is the lowest growing global region, especially with the European Central Bank holding off on rates increase and the introduction of additional stimulus due to weaker than anticipated growth.

Phil Smith, an economist with IHS, sees “more and more firms reporting lower demand linked to Brexit and trade uncertainty, troubles in the automotive industry and generally softer global demand.”

The Euro remains fairly stable against the Japanese Yen but below the ascending trendline and expected to drop 123.60 as long as 124.92 resistance holds.