Euro Area Faces Weak Growth, Waning Optimism as Trade Woes Bite

(Bloomberg) --

An erosion of euro-area business confidence due to trade tensions and political uncertainty suggests the economy’s feeble pace of expansion is unlikely to improve.

“The euro zone remained mired in a fragile state of weak and unbalanced growth in August,” said Chris Williamson, an economist at IHS Markit. “The picture remains very mixed both by sector and country, highlighting how downside risks persist.”

France led last month’s performance with solid activity in services and a rebound in manufacturing. Germany only registered moderate gains. A composite Purchasing Managers’ Index for the entire euro region rose to 51.9 from 51.5.

While that slightly exceeds a preliminary estimate, the gauge still only points to a quarterly pace of economic growth of 0.2% at most, according to IHS Markit.

The report provides ammunition for European Central Bank policy makers of all stripes. Those in favor of more monetary stimulus can point to fragile manufacturing and a sharp decline in external demand; those against have a marginal improvement in orders and a modest pickup in employment to cite.

The Governing Council meets next Thursday and is widely expected to cut interest rates. Some economists also see a restart of quantitative easing, nine months after the program was capped at 2.6 trillion euros ($2.9 trillion).

“Companies are already braced for tougher times ahead,” Williamson said. “We therefore expect to see renewed stimulus from the ECB in September as the central bank seeks to revive demand and stem the spreading malaise.”

To contact the reporter on this story: Piotr Skolimowski in Frankfurt at pskolimowski@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Jana Randow, Paul Gordon

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