Euro zone investor mood darkens in Sept -survey
Investor morale in the euro zone fell more than expected due to Germany's economic weakness, with the situation being described as "precarious" and potentially leading to a global recession.
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Posted 9/4/2023, 8:32:00 AM
reuters.com
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The euro fell to a two-month low against the dollar and a 12-month low against the pound after German and eurozone business activity slumped more than expected in August, leading to concerns about the state of the European economy and potential pauses in tightening measures by the European Central Bank, while the dollar rose to a two-month peak amid positive U.S. economic data.
Euro zone business activity declined more than expected in August, particularly in Germany, while some inflationary pressures returned, posing a challenge for the European Central Bank's efforts to control inflation without causing a recession.
Germany's business activity has seen a sharp decline, leading to concerns of a recession, as the country's Purchasing Managers' Index (PMI) dipped to its lowest level in over three years. This decline in activity is impacting the wider eurozone economy as well, with the region at risk of slipping into recession. This economic downturn is accompanied by a worrying uptick in inflation and slow growth, particularly in Germany.
Germany, once known as the "sick man of Europe," is facing a new economic downturn characterized by sticky inflation, falling output, and structural issues such as an aging population and high corporate tax rate, prompting concerns of a prolonged recession; however, the country's strong employment levels, record public finances, and adaptability through its Mittelstand of small and medium-sized businesses provide hope for recovery.
The mood among German businesses worsened in August, falling for the fourth consecutive month and raising concerns about a possible second recession; the Ifo business climate index dropped to 85.7, lower than expected, while the country's economy recorded zero growth in Q2.
German business morale deteriorated more than expected in August, falling for the fourth consecutive month as weak new orders and declining export expectations contribute to pessimism about the economy's recovery.
European bonds and stocks fell as inflation data suggested that inflation in the euro region may not be fully subsiding, while utilities led the decline in the Stoxx Europe 600 and the German and Spanish inflation data complicated the outlook for European policy makers.
German exports fell 0.9% in July, less than expected, due to global demand weakness and supply-chain friction.
Germany, once hailed as Europe's economic powerhouse, is now facing structural problems and could be on the verge of decline, according to experts, with factors such as stagnant GDP, high inflation, an aging population, overdependence on exports, and underinvestment contributing to its current predicament.
European stock markets weakened on Thursday due to signs of slowing growth in Europe and China, as well as concerns about future Federal Reserve tightening. German industrial production fell more than expected, adding to the struggles of the eurozone's largest economy. China's exports and imports also fell in August, indicating continued pressure on its manufacturing sector. Additionally, stronger-than-expected US inflation data raised concerns about sticky inflation. Oil prices fell as signs of slowing Chinese growth overshadowed a draw in US inventories.
European stock markets edged higher as investors digested positive French industrial production data, although major cash indices are on track to register losses for the week, and the pan-European benchmark index has experienced seven consecutive days of losses. French industrial production rebounded more than expected in July, while figures for Spain showed a smaller-than-expected decline. However, German industrial production fell more than expected in July, and economic growth in the eurozone for the second quarter was just 0.1%. Concerns about the strength of the Chinese and Japanese economies have also risen. The tech sector is under pressure due to Apple's difficulties in China, and oil prices have retreated but are still on course for gains this week.
The European Commission has revised down its economic forecast, citing high prices for goods and services as a significant factor, leading to reduced growth projections for the European Union and the eurozone. Germany is expected to experience a downturn, while inflation is projected to exceed the European Central Bank's target. Weak consumption, credit provisions, and natural disasters are also contributing to the loss of momentum in the economy. However, the report highlights the strength of the EU labor market with a low unemployment rate.
The euro zone economy is expected to contract this quarter and remain in recession as the impact of central banks' interest rate rises hampers growth, according to a survey by HCOB's flash euro zone Composite Purchasing Managers' Index (PMI), with Germany and France experiencing significant declines in business activity.