Trade War Hits Eurozone Growth

Growth in the eurozone economy lost steam in September as European factories saw diminished demand amid Brexit tremors and the effects of a multi-front Trump trade war, a key survey showed on Friday.

Data monitoring company IHS Markit warned that export growth was “evaporating” in the 19-country single currency bloc, Reuters reported.

The purchasing managers’ index by IHS Markit fell to 54.2 in September, which was lower than forecasts by analysts. A figure over 50 indicates the economy is expanding.

“A near stagnation of exports contributed to one of the worst months for the eurozone economy for almost two years,” said Chris Williamson, Chief Business Economist at IHS Markit.

“Trade wars, Brexit, waning global demand (notably in the auto industry)... and rising political uncertainty both within the eurozone and further afield all fuelled the slowdown in business activity,” he said.

Markit said the slowdown was driven by the manufacturing sector as new export orders failed to grow for the first time since June 2013. The “softening” in the PMI “adds to evidence that the region’s economy has lost some momentum after 2017’s very strong expansion,” said Jessica Hinds of Capital Economics.

Still, “as the index is still consistent with a decent pace of growth, the European Central Bank is unlikely to change its plans to normalize policy very gradually,” she added.

This referred to the crisis-fighting stimulus program that the Frankfurt-based central bank is due to scale back until ending it outright in December. The dimmer outlook lines up with the bleaker outlook of the ECB which slightly lowered its growth forecast for the eurozone for this year and 2019.

Amid the trade tensions as well as concerns about emerging markets, the bank now expects growth of 2% in 2018 and 1.8% in 2019.

Meanwhile, German private sector growth also slowed slightly more than expected in September, with a surprise surge in services activity not enough to offset a sharp slowdown in manufacturing.

Markit’s flash composite PMI fell to 55.3 from 55.6 the previous month.

This undershot the consensus forecast in a Reuters poll of economists who had expected a slowdown to 55.4. Still, it was well above the 50 mark that separates growth from contraction.

Manufacturing growth slowed to reach its lowest level in more than two years, the survey showed, with the respective sub-index falling to 53.7 from 55.9. Analysts had expected a smaller drop to 55.7.