European Manufacturers Shake Off Some of Their 2019 Gloom
The headwinds that pummeled European industry into its worst slump in seven years have eased recently.
(Bloomberg) --
Europe’s manufacturers started the new year on an upbeat note, the latest sign that the uncertainty that’s shrouded the sector and the region’s economy more broadly has lifted somewhat in recent weeks.
The headwinds that pummeled European industry into its worst slump in seven years have eased recently. A U.S.-China deal has brought at least a pause in the trade war between the world’s two largest economies, and Brexit negotiations appear to be on track. Those incipient signs of progress have generated optimism among investors, policy makers at the European Central Bank as well as some business executives that growth momentum will pick up. They all warn, however, that many risks remain.
The European Commission said on Thursday its economic sentiment index for the euro area rose “markedly” in January to 102.8 from a revised 101.3. Economists in a Bloomberg survey had been expecting only a slight up-tick from December.
The euro, which rose earlier after stronger than expected German state inflation, remained slightly higher against the dollar. At 11:07 a.m. Frankfurt time, it was at $1.1019.
The rise in confidence was particularly strong in Germany and France, and generally led by manufacturing and construction. In the euro area, industry managers were more optimistic about the outlook for production and, to a lesser extent, demand from customers.
The outlook in services dimmed somewhat, and consumers have yet to be convinced that better times are ahead. Their view of the economy in the coming 12 months dropped to the lowest since 2013.
In a separate report, Eurostat said euro-area unemployment dipped slightly at the end of 2019. At 7.4%, the jobless rate is now at the lowest since 2008.
Mixed Bag
The findings on Thursday are the latest in what’s been a mixed bag of data in recent weeks.
A survey of purchasing managers in Germany has pointed to a stronger-than-forecast improvement in the country’s beleaguered manufacturing sector, even if it’s still contracting, and a closely watched confidence index improved for a fourth month. Yet strains have appeared on the labor market, and services and construction slowed at the start of the year.
The French economy has held up reasonably well even though strikes and protests over President Emmanuel Macron’s planned pension reforms have weighed on consumer spending. Supermarket operator Casino Guichard Perrachon SA has already slashed its forecast for full-year operating profit in France.
Elsewhere in the region, confidence fell slightly in Italy and more notably in Spain.
What Bloomberg’s Economists Say
“The latest indicators point to stronger momentum. Trade tensions are easing, risks posed by Brexit have diminished and policy uncertainty has receded. That will put a floor under growth this year.”
-- Jamie Rush, chief European economist. Read the EURO-AREA PREVIEW
Since ECB President Christine Lagarde said last week that downside risks to the euro-area economy have become less pronounced, some new threats have appeared. The new coronavirus is taking a toll on business as airlines including Lufthansa cut flights, and companies such as Finnish elevator-maker Kone expect a hit on bottom lines amid factory closures. Trade disagreements between the U.S. and Europe could also flare up again.
Despite the hurdles, the International Monetary Fund sees euro-area growth momentum picking up. The Washington-based lender updated its outlook last week, predicting the region’s rate of expansion will accelerate to 1.4% in 2021 from 1.2% last year.
Eurostat will publish its first estimate for the fourth quarter on Friday.
--With assistance from Harumi Ichikura and 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, Jana Randow
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