World Economy
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Spotlight Falls on Europe’s Waining Economy

Spotlight Falls on  Europe’s Waining EconomySpotlight Falls on  Europe’s Waining Economy

As large parts of Europe’s economy grind almost to a halt, attention will focus this week on the latest assessments of business confidence in the eurozone and Germany, which has just narrowly avoided a recession.

While the United States economy has accelerated and China holds a slower but steady course, eurozone countries have remained sluggish, with overall growth in output slowing to a trickle, Reuters reported.

“The eurozone is the best part of 20 percent of the global economy,” James Knightley, an economist with ING, said. “The longer the stagnation goes on the more Japan-like it becomes.”

The eurozone’s problems have raised expectations that the European Central Bank is preparing to loosen its purse strings further to try to rekindle growth.

Against this backdrop, Germany’s Center for European Economic Research’s (ZEW) monthly barometer of sentiment, due on Nov 18, will provide more insight into business confidence levels.

The Ukraine crisis is a major drag on business and investor sentiment, especially as there have been new reports of Russian troops pouring into eastern Ukraine.

German Chancellor Angela Merkel said at the G20 leaders’ summit on Saturday in Brisbane that the European Union was considering further financial sanctions against Russian individuals because of the crisis.

Fallout from the Ukraine conflict is exacerbating the eurozone’s problems, with European sanctions squeezing Russia’s banks and companies and having knock-on effects particularly on Germany.

A company purchasing managers’ survey on Nov. 20 will offer a snapshot of whether companies are expanding in Germany, France and across the eurozone.

That follows new monthly information on international trade, due out on Monday, which will show the extent of falls in exports to Russia.

The bleak picture in Europe contrasts with brighter prospects for the United States, where an update on the how the country’s manufacturers are faring is also out on Monday.

As the US economy picks up, its central bank is moving closer to raising the cost of borrowing for the first time in more than eight years.

Later in the week, economists will pore over the minutes of the Federal Reserve’s latest policy meeting for any hints as to when Fed Chair Janet Yellen will begin reining in cheap money.

As global demand for China goods has slowed, its manufacturing costs are rising, prompting some companies to shift to cheaper neighbors such as Vietnam.

The downbeat picture in Europe and China’s wobble have convinced some economists that the world will have to get used to more modest living standards.

Even in countries where the recovery has been relatively robust, such as the United States or Britain, many people have barely noticed the difference between recovery and recession because their earnings have stayed low.

Price inflation in Britain, due out on Nov 18, is likely to stay around the 5-year low it hit in September.

Some economists are now convinced that low or no inflation is the new normal.

Financialtribune.com