Eurozone Factory Confidence Slumps on Trade Disputes
June 27 2019 - 5:29AM
Dow Jones News
By Paul Hannon
Eurozone manufacturers were at their most downbeat in almost six
years in June as hopes for a speedy resolution to a series of
disputes between the U.S. and its main trading partners faded.
Weaker exports have cooled the eurozone economy over the past 18
months, hitting the currency area's manufacturing sector
particularly hard. Economists partly attribute that slowdown in
exports to higher global tariffs and uncertainty about how much
further such levies will be raised, as well as a lack of clarity
about when and in what way the U.K. will leave the European
Union.
That uncertainty and the effect it is having on business
confidence has been a key factor behind the European Central Bank's
shift toward considering fresh stimulus, including a cut in its
already-negative interest rate and a resumption of its bond
purchases, which were paused in December.
Figures released by the European Commission on Thursday showed
confidence in the currency area's industrial sector plummeted to
its lowest level since September 2013 during June, while consumers
experienced a less marked decline in optimism.
The Commission's Economic Sentiment Indicator--an aggregate
measure of confidence across businesses and consumers--fell to
103.3 from 105.2 in May, hitting its lowest level since August
2016.
The decline in the measure for industrial confidence to minus
5.6 from minus 2.9 in May took it below its long-term average for
the first time since 2013, indicating that manufacturers have
become pessimistic about their prospects, having previously been
optimistic.
The weakening of sentiment may affect economic growth, since
gloomy businesses are less likely to invest than those with a more
upbeat view of their prospects. They are also less likely to hire,
and for the first time since mid-2016, manufacturers reported that
they intend to cut payrolls over the coming 12 months.
Earlier in 2019, eurozone policy makers and businesses had hoped
to soon have answers to key questions about future U.S. trade
policy and Brexit. But the breakdown in talks between the U.S and
China in early May, coupled with a postponement of the date for the
U.K.'s departure from the EU, have dashed those hopes.
"In March we might've hoped for a trade deal, we might've hoped
for a decrease in uncertainties more generally," said European
Central Bank President Mario Draghi in a news conference earlier
this month. "We might've hoped for a different evolution in the
Brexit, but now it's different."
For now, however, it isn't clear whether feeble factory activity
is dragging down the rest of the global economy. According to the
Commission's survey, confidence in the services sector eased only
slightly in June, while it picked up among retailers and
construction companies.
Write to Paul Hannon at paul.hannon@wsj.com
(END) Dow Jones Newswires
June 27, 2019 05:14 ET (09:14 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.