Europe’s Slow Recovery From Factory Slump Hit by Coronavirus
Europe’s Recovery from Manufacturing Slump Hit by Coronavirus
(Bloomberg) --
European weak economic growth is set to continue this year, the bloc’s executive said, warning that a deadly viral outbreak could further damp the outlook.
A month after a U.S.-China deal offered hope for global trade and industry, the coronavirus that’s killed more than 1,000 people in China and crippled parts of the country’s manufacturing capacity has pushed the world into a new crisis. The European Commission singled it out as a “key downside risk.”
Europe’s biggest companies have already been spelling out how the epidemic is hitting their business. Drinks giant Pernod Ricard on Thursday cut its forecast for full-year profit growth by about half. Tiremaker Michelin and Pernod rival Remy Cointreau have also lowered their outlooks, and the International Energy Agency sees global oil demand falling this quarter for the first time in over a decade.
“While some downside risks have faded, new ones have emerged,” the commission said in its first major update on the economy this year.
In the report, the commission left its forecast for 2020 economic growth at a “subdued” 1.2%, the same pace as 2019. At 1.3% for this year and 1.4% for 2021, the inflation outlook is slightly higher compared with November, but still well below the European Central Bank’s goal of just below 2%.
Uncertainty about the duration and the severity of the outbreak “comes with broad-based global ramifications for manufacturing, with its cross-border supply chain,” EU economy chief Paolo Gentiloni said. “But it also has implications for services, including transport and tourism, both in and out of China.”
Despite the risks, the commission said the euro-area economy remains on a “steady path.” That’s partly because its baseline assumption is that the virus outbreak peaks this quarter, with “relatively limited global spillovers.”
Still, there’s worry about China’s short-term prospects and the degree of global disruption at a time when manufacturing is still weak.
That weakness was on full display in the past week in huge declines in industrial production in Germany and France. The euro has fallen to the lowest since 2017 against the dollar, and German 10-year bond yields remain well below zero.
There’s even talk of a recession risk in Germany, Europe’s largest economy, and figures due Friday could show a contraction in the fourth quarter.
That would be a further blow to the euro zone and could renew the pressure on German politicians to increase spending. Calls for governments with fiscal space to act have so far largely fallen on deaf ears.
The ECB is already on alert over newly emerged threats to the outlook. Spanish policy maker Pablo Hernandez de Cos added to the chorus of officials on Thursday, saying the coronavirus is compounding risks after some earlier signs of stabilization.
Chief Economist Philip Lane said on Wednesday the economy could experience a “pretty serious short-term hit.”
--With assistance from Zoe Schneeweiss, Kristian Siedenburg and Nikos Chrysoloras.
To contact the reporter on this story: Viktoria Dendrinou in Brussels at vdendrinou@bloomberg.net
To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Jana Randow
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