Euro Area Outlook Fades as Confidence Wilts, France Disappoints

(Bloomberg) --

There’s no reprieve in sight for the ailing euro area, with economic confidence dropping to its lowest level in more than three years and French growth providing less support than expected.

The European Commission’s monthly reading of sentiment fell as executives in industry worried about production and orders, and managers in the services sector became more pessimistic about future demand. In France, economic expansion slowed as consumer spending growth weakened despite President Emmanuel Macron’s tax cuts.

The data are another blow for policy makers already fighting fires in several parts of the euro area. European Central Bank President Mario Draghi, who is expected to loosen monetary policy again in September, has warned that the outlook is getting “worse and worse.” The commission’s Business Climate Indicator dropped markedly in July, reaching its lowest level in almost six years.

The economic slowdown is being felt across multiple countries and regions. Sweden’s economy unexpectedly shrank in the second quarter, and industrial production in Japan plunged in June. The Bank of Japan kept its monetary policy unchanged, taking a wait-and-see stance ahead of an expected interest rate cut from the Federal Reserve on Wednesday.

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For the euro area, the confidence reading and the French figures may just be the start of a gloomy week. Data are expected to show growth in the region slowed by half to 0.2%. The German economy probably contracted, according to the Bundesbank. Those figures will be released on Aug. 14.

French growth was driven exclusively by domestic demand, with company investment and public spending accelerating. Net trade didn’t make a contribution, while inventories weighed on output.

The government saw reasons for optimism. Junior economy minister Agnes Pannier-Runacher said investment will drive future growth and job creation, and also noted that some of Macron’s tax cuts for households won’t kick in until early 2020.

“At this stage, there is no reason to be anxious about our pace of growth,” she said on French television LCI.

That confidence may be undermined if manufacturing weakness infects the rest of the French economy. Sentiment in the sector dropped to a six-year low in June as automotive, plastics and electronics production slumped, according to a recent Bank of France survey.

“This year is less buoyant than last year given all the economic uncertainties. There is less visibility,” Legrand Chief Executive Benoit Coquart, chief executive of electrical equipment maker Legrand SA said Tuesday after the company published first-half results.

--With assistance from Harumi Ichikura, Fercan Yalinkilic and Vidya Root.

To contact the reporter on this story: William Horobin in Paris at whorobin@bloomberg.net

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

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