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Germany downturn drags eurozone to near stagnation Draghi bows out at ECB with warning on eurozone weakness
(about 8 hours later)
German companies shed more jobs this month than they created for the first time in six years, according to figures that underscore how a slump in the EU’s largest economy has dragged down the rest of the eurozone. Mario Draghi, the outgoing president of the European Central Bank, has warned that slowing global growth and Brexit uncertainty pose a risk to growth in the eurozone economy amid concerns that Germany remains on the brink of recession.
Speaking in Frankfurt after his final ECB policy meeting before stepping down, Draghi said the ECB was concerned that the economy of the 19-member currency bloc, which has slowed this year along with much of the global economy, faced “protracted weakness” going into 2020.
With consumer and business confidence low and trade with the US hit by Donald Trump’s latest raft of import tariffs, risks were all “to the downside”, said the Italian economist, who will be succeeded on 1 November by former International Monetary Fund head Christine Lagarde.
He said: “The incoming data since the last governing council meeting in early September confirm our previous assessment of a protracted weakness in the euro area growth dynamics, the persistence of prominent downside risk and muted inflation pressures.
“The main risk from all viewpoints, but especially also from a financial stability viewpoint, is a downturn in the economy … whether it is global or it is eurozone.”
His comments followed a snapshot of business activity that pointed to the eurozone economy entering a period of “near stagnation”.
German companies were the worst affected, with employment in Europe’s largest economy falling for the first time in six years according to a closely watched business survey.
After 14 months of falling new orders from abroad and a steep drop in sales across the manufacturing sector in October, the German economy’s slide to the brink of recession appeared to be continuing unabated.After 14 months of falling new orders from abroad and a steep drop in sales across the manufacturing sector in October, the German economy’s slide to the brink of recession appeared to be continuing unabated.
IHS Markit’s flash composite output index for Germany – which is based on approximately 85% of the usual monthly replies – registered 48.6, little changed from September’s near seven-year low of 48.5 and below the 50 no-change level for the second month in a row. IHS Markit’s flash composite output index for German manufacturing and services – which is based on about 85% of the usual monthly replies – registered 48.6. It was little-changed from September’s near seven-year low of 48.5, where anything below 50 signals contraction.
The composite index, which covers the services and manufacturing sectors, showed the drop in overall employment, the first since 2013, tracked a fall in work and a deterioration in business confidence about future activity. Analysts said the year-long decline in German output had dragged down the 19-member eurozone to near stagnation.
IHS Markit said its report found that firms kept staff busy working through backlogs of orders for the 12th month in a row and at the quickest rate for nearly seven years. The flash composite index for the wider eurozone increased to 50.2 in October, up marginally from 50.1 in September, thanks to small signs of green shoots from France, which increased its exports, Italy and other parts of the eurozone. It was the second smallest expansion of output across manufacturing and services since the current upturn began in July 2013.
Analysts said the year-long decline in German output had dragged down the 19-member eurozone to near stagnation. The flash composite index for the eurozone increased to 50.2 in October, up marginally from 50.1 in September, “to signal the second smallest expansion of output across manufacturing and services since the current upturn began in July 2013”. The ECB revived its stimulus programme last month after a decline in inflation and GDP growth suggested the eurozone was heading for a period of contraction.
The small signs of green shoots from France, which increased its exports, Italy and other parts of the eurozone, will cheer Mario Draghi, who has his last meeting as president of the European Central Bank on Thursday. But Chris Williamson, the chief business economist at IHS Markit, said: “The [PMI] survey indicates that Mario Draghi’s tenure at the helm of the ECB ends on a note of near-stalled GDP, slower jobs growth, near-stagnant prices and growing pessimism about the outlook, piling pressure on Christine Lagarde to drive new solutions to the eurozone’s renewed malaise.”
Last month the ECB revived its stimulus programme after a decline in inflation and GDP growth showed the eurozone was heading for a period of contraction.
As a counterweight to the deterioration in Germany, business activity picked up in France, registering the third-largest expansion of output in 11 months. New orders and jobs growth also quickened.
But Chris Williamson, the chief business economist at IHS Markit, said the composite index showed the eurozone economy grew by only 0.1% in July to September, down from the 0.2% growth recorded between April and June and well below long-term trends.
He said the uncertainty created by Brexit negotiations, the US-China trade war, and the global slowdown were all hurting eurozone companies.
“The eurozone economy started the fourth quarter mired close to stagnation, with the flash PMI pointing to a quarterly GDP growth rate of just under 0.1%. The manufacturing downturn remains the fiercest since 2012 and continues to infect the service sector, where October saw the smallest increase in new work for almost five years,” Williamson said.
“The labour market is, meanwhile, being hit as firms retrench amid signs of excess capacity and uncertainty about the year ahead intensifies. Optimism about future prospects deteriorated further in October to the lowest for over six years, commonly linked to global trade tensions, Brexit-related worries and increasingly gloomy economic forecasts.
“A further deterioration in jobs growth adds to the risk that the trade-led weakening is spreading further to the household sector, which could dampen growth further as we head towards the end of the year.”
He added: “The survey indicates that Mario Draghi’s tenure at the helm of the ECB ends on a note of near-stalled GDP, slower jobs growth, near-stagnant prices and growing pessimism about the outlook, piling pressure on Christine Lagarde to drive new solutions to the eurozone’s renewed malaise.”
EurozoneEurozone
Global economyGlobal economy
EconomicsEconomics
GermanyGermany
EuropeEurope
Manufacturing sectorManufacturing sector
Mario Draghi
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