Eurozone Factory Confidence Slumps on Trade Disputes

Date : 06/27/2019 @ 10:29AM
Source : Dow Jones News

Eurozone Factory Confidence Slumps on Trade Disputes

    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.


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