Europe Remains a Weak Spot for the Global Economy
January 24 2020 - 5:47AM
Dow Jones News
By Paul Hannon
Europe's economy remained a global weak spot as 2020 got under
way, with its services sector losing momentum even as factories saw
export orders begin to stabilize after a long and deep decline.
Signs of continued sluggishness in Europe will dent hopes that
the global economy will stage a modest rebound this year as some of
the uncertainties around the rules governing global trade lift,
following a cease-fire agreement between the U.S. and China, and
the U.K. the U.K. due to leave the European Union next week in an
orderly fashion.
The International Monetary Fund estimates that the global
economy grew at the weakest pace since the financial crisis during
2019, but expects to see a slight pickup this year. Other
economists share that view.
"We see a meaningful recovery," said Chetan Ahya, chief
economist at Morgan Stanley, who expects global economic growth to
pick up steadily to 3.5% by early 2021 from 2.9% at the end of last
year.
Europe was one of the global economy's weak spots during 2019,
with the IMF estimating that growth slowed to a six-year low as
exports faltered and the manufacturing sector contracted.
By contrast, recent data show the U.S. economy remains on a
solid footing, clocking a 2.1% annualized growth rate in the third
quarter. The unemployment rate was 3.5% in December, a fifty-year
low.
Data firm IHS Markit's surveys of purchasing managers at
businesses around the eurozone pointed to continued weakness in
activity during January, according to figures released Friday. The
composite Purchasing Managers Index, a measure of activity in the
manufacturing and services sectors, was unchanged at 50.9. A
reading above 50.0 points to an increase in activity, while a
reading below that level points to a decline.
The currency area's manufacturing sector continued to contract,
but more slowly than in previous months, while new orders were only
slightly down on the previous month.
In Europe, Germany has been hardest hit by the slowdown in
overseas demand since the start of 2018, but the surveys indicated
that new export orders fell only slightly in January, and less
sharply than for 15 months. Its PMI rose to a five-month high, but
other parts of the currency area were close to stagnation.
"The storm clouds over the German economy may be starting to
clear," said Phil Smith, an economist at IHS Markit.
The trade truce between the U.S. and China may help revive trade
flows this year, but it isn't clear how much that will benefit
Europe. Under the deal, China has committed to buy an additional
$200 billion in U.S. goods across 2020 and 2021. It may meet that
target by cutting its purchases from other countries.
"This is something that our teams are looking at very carefully
to assess exactly what will be the impact on the net basis for the
euro area," said Christine Lagarde, the European Central Bank's
president, in a news conference Thursday.
The outlook for trade with the U.S. is also uncertain, with
President Trump threatening to place tariffs on imports of
automobiles if the European Union doesn't agree to a new deal that
is more favorable to American exporters.
The ECB Thursday concluded that rising protectionism still
threatens to slow the eurozone's economy, making it unlikely that
it will soon consider a rise in its key interest rate.
By contrast, the surveys pointed to a rebound in the U.K.
economy, which slowed in 2019 as businesses cut back on investment
spending in the face of uncertainty about when and under what terms
the country would leave the EU
Prime Minister Boris Johnson's victory in a December election
opened the way for the U.K. to leave the bloc on Jan. 31 and under
agreed terms, although businesses still don't know what the rules
governing trade will be from 2021.
The U.K.'s composite PMI jumped to 52.4 from 49.3 in December,
reaching its highest level in almost 18 months and making a cut in
the Bank of England's key interest rate less likely when policy
makers announce their decision on January 30.
A survey of Japanese purchasing managers carried a similar
message to that from Germany, which is also one of the world's
leading exporters. The composite PMI rose to 51.1 from 48.6 in
December, signaling a return to growth after a weak end to 2019.
There were signs of a revival in export orders for manufactured
goods, and the manufacturing PMI hit a five-month high.
"Japanese industry might be turning a corner," said Tom
Learmouth, an economist at Capital Economics.
Write to Paul Hannon at paul.hannon@wsj.com
(END) Dow Jones Newswires
January 24, 2020 05:32 ET (10:32 GMT)
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