European Confidence Drops to Four-Year Low as Economy Stumbles

(Bloomberg) --

The outlook for the euro-area economy has taken another hit, with confidence in industry dropping to its lowest in six years in a sign that the impact of uncertainty from trade tensions and Brexit is getting worse.

A downturn centered on manufacturing is weighing heavily on the region, with Germany on the brink of recession and most major economies recording slower growth. The latest European Commission survey highlights the damage, with industry managers more worried about demand from customers and showing less enthusiasm for hiring.

The decline dragged an overall measure of euro-area sentiment down more than economists had forecast in September, to its weakest reading since early 2015.

The euro, which has fallen almost 4% in the past three months, was little changed at $1.0924 as of 11:35 a.m. Frankfurt time.

Manufacturing across the euro area, and particularly in Germany, has been hammered by a cocktail of uncertainty stemming from trade tensions between China and the U.S., and negotiations over the pending exit of the U.K. from the European Union.

The slowdown has already prompted a response from the European Central Bank. It cut interest rates this month and announced a new round of asset purchases, joining a global wave of monetary easing.

The commission said industry managers were “markedly more pessimistic” on all fronts in September, including production expectations and order books.

Services, which has so far proved more resilient, showed a slight improvement in confidence. Still, that figure remains near its lowest level since mid-2015. Consumers were also less gloomy.

Recent weeks have been marked by even greater uncertainty radiating from the U.K. over Brexit. Spain’s acting Prime Minister Pedro Sanchez said in an interview this week with Bloomberg News that a no-deal scenario was the biggest threat to Spanish economic growth.

Reflecting the malaise, British Airways owner IAG SA warned this week that the challenges facing the European airline industry, including the weaker economy, will continue into 2020.

Germany’s Commerzbank AG on Friday cut its revenue outlook because of woes in the corporate client business in particular. “Over the course of 2019, the market environment has continued to deteriorate,” it said.

“It is not in the baseline to have a recession,” incoming European Central Bank President Christine Lagarde told Bloomberg Television, when asked about the euro zone. “That said, it’s mediocre growth, it’s at risk because of essentially one major threat, which is the trade war that we see developing or brewing and the uncertainty it generates for investors.”

--With assistance from Kristian Siedenburg.

To contact the reporter on this story: Jeannette Neumann in Madrid at jneumann25@bloomberg.net

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

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