SocGen Chairman Warns Economic Risks Are Building in Europe

(Bloomberg) -- Trade tensions and uncertainty surrounding Brexit are raising economic risks for the euro region that may require central bank action, according to Societe Generale SA Chairman Lorenzo Bini Smaghi.

“At some point the slowdown may reach bottom, and we want to have the monetary instruments in place to avoid that this becomes a recession,” he said in a Bloomberg News TV interview on Saturday at an economics conference in Aix-en-Provence, southern France. “We have all the factors of uncertainty.”

German factory orders slumped in May in the latest sign that global trade uncertainty is turning Europe’s temporary slowdown into a more serious downturn. The economy ministry reported huge declines in export orders and investment goods, after a survey showed factory activity shrank for a sixth month in June. The continued gloom is increasing concern at the European Central Bank, and a growing number of economists are predicting it will add more monetary stimulus as soon as this month.

The ECB may have to take action even before the newly-nominated Christine Lagarde takes over in October, Smaghi said. “If the Fed is very aggressive in July, why should the ECB wait for the new president, actually maybe it could make its life easier if the stimulus was provided already in the fall without waiting for Lagarde,” he said.

Also speaking in Aix-en-Provence, French Finance Minister Bruno Le Maire raised the specter of an economic slowdown, calling on European countries to invest to ward it off. It would be irresponsible not to take action now, he said, adding that negative interest rates run the risk of turning into an addiction, preventing countries from dealing with reality. The region and especially Germany, its biggest economy, must put money into areas such as innovation and infrastructure, rather than social spending, he said.

While orders data can be volatile, there’s little doubt the numbers are disappointing. The 2.2% overall drop on the month was far worse than the 0.2% fall predicted by economists in a Bloomberg survey. The year-on-year decline of 8.6% was the biggest in almost a decade.

By contrast, the CEO of the European stock exchange Euronext NV Stephane Boujnah painted a brighter picture of the months ahead. “The momentum in the euro zone is good,” he said in an interview. “Some countries have slowed down in orders, but others are making real progress,” he said. In the euro zone, he expects the second part of the year to be “better than the first.”

The French official added that German CDU party chief Annegret Kramp-Karrenbauer, who took over from Chancellor Angela Merkel, supported French President Emmanuel Macron’s economic policy.

--With assistance from Angelina Rascouet and Fabio Benedetti-Valentini.

To contact the reporters on this story: Angeline Benoit in Paris at abenoit4@bloomberg.net;Caroline Connan in Paris at cconnan@bloomberg.net;Ania Nussbaum in Paris at anussbaum5@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Tara Patel, Andrew Davis

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