Business morale in Germany, France and Italy – the eurozone’s three biggest economies – deteriorated in April as a stronger currency and capacity constraints limited output, signalling that growth in the currency bloc has reached its peak.
The eurozone was unexpectedly one of the best performers among major economies last year. But surveys suggest that growth has steadily slowed since January on euro strength and fears of a trade war between China and the US.
German business confidence fell for a fifth consecutive month in April to reach the lowest level in more than a year, the Ifo institute said yesterday, suggesting that Europe’s biggest economy is losing some steam.
“High spirits among German businesses have evaporated,” Ifo chief Clemens Fuest said. “The German economy is slowing down.”
The ECB is stuck in a corner
The Munich-based Ifo institute said its new business climate index, which for the first time incorporated responses from the services sector, fell to 102.1 from 103.3 in March.
This was the lowest reading since March 2017 and came in weaker than a Reuters poll of analysts who had pointed to a less pronounced drop to 102.7.
Separate data from France’s national statistics body yesterday showed that industrial morale in the eurozone’s second-biggest economy dropped to 109 points in April, down from a revised figure of 110 points for March.
“There’s definitely a slowdown and the euro is not helping,” said Ion-Marc Valahu, fund manager at Geneva-based firm Clairinvest.
“The European Central Bank is stuck in a corner. If they look to normalise rates, the euro will just shoot up and they’re finding it hard to successfully talk down the euro.”
In Italy, the eurozone’s third largest economy, morale among businesses also fell amid political stalemate in the wake of inconclusive national elections seven weeks ago.
The surveys contradicted IHS Markit’s composite flash Purchasing Managers’ Index (PMI) for the eurozone, which was released on Monday and showed private sector growth held steady in April. Oliver Rakau from Oxford Economics said the national surveys put the expected bounce-back of GDP growth in the second quarter into question after a soft patch at the start of the year.
“Combined with risks to the export outlook from rising trade tensions, the eurozone economy looks to be clearly past its growth peak,” Rakau added.
Business morale in German manufacturing deteriorated for the third consecutive month but nevertheless remained at a high level, according to the Ifo survey, which is now based on the responses of some 9,000 firms.
“Companies are reaching capacity limits. Many firms cannot hike production and work through their orders because there’s a shortage of staff,” Ifo economist Klaus Wohlrabe said.