Euro-area growth momentum slides

Bloomberg

Economic activity in the euro area’s private sector weakened further as still-solid services couldn’t make up for rapidly deteriorating manufacturing.
A composite Purchasing Managers’ Index (PMI) dropped to 51.5 in July, with goods output falling for a sixth months and at the greatest extent since 2013.
“The service sector continued to sustain the expansion of the overall euro-zone economy at the start of the third quarter,” said Chris Williamson, chief business economist at IHS Markit. “But there are signs that the scale of the manufacturing downturn is starting to overwhelm.”
Economic growth in the euro area slowed to just 0.2% in the April-June period, and companies including Siemens AG are blaming trade tensions and geopolitical uncertainty for a deteriorating outlook. IHS Markit estimates that at the start of the third quarter, the region’s pace of expansion slipped closer to 0.1%.
The report comes as European Central Bank policy makers study tools for jumpstarting the economy. Analysts and investors expect them to lower interest rates and announce asset purchases as soon as September.
While domestic demand has so far been able to largely offset weakening global trade, IHS Markit says prospects of rising joblessness could pose a challenge.
“The main source of expansion currently appears to be the consumer, in turn buoyed by the relative strength of the labor market,” said Williamson.
“There are signs that this growth engine is also losing impetus, and adding another headwind to the economy for the coming months.”

Investor confidence
Investor confidence in the euro-area economy fell to its lowest level in nearly five years amid increased concern about a fully-fledged trade war between the US and China, according to
Sentix.
The index fell to minus 13.7 in August, the lowest since October 2014, with gauges for current conditions and expectations both deteriorating. Germany, whose economy is highly reliant on exports, is suffering particularly badly, with a recession now being “inevitable.”
A trade dispute between the world’s two largest economies just entered a new phase. Beijing responded to US President Donald Trump’s threats of additional tariffs on Chinese goods by letting the yuan tumble to the weakest level in more than a decade and asking state-owned companies to suspend imports of US agricultural products.
“Trump has once again poured oil into the fire” with his new China tariffs, Sentix Managing Director Patrick Hussy said in a statement.
Economic prospects for the 19-nation euro area weren’t rosy even before the latest escalation on trade. The region’s growth pace halved in the second quarter and prospects for inflation deteriorated, prompting policy makers at the European Central Bank to prepare more monetary stimulus.