markets

European Economy Loses Thrust in Risk for Global Expansion

Updated on
  • French growth slows sharply, euro-area confidence unchanged
  • U.S. data showed GDP slowdown was less than expected
Draghi says growth is set to remain solid, broad-based.

Europe’s economy lost momentum in the first quarter as expansions slowed from France to the U.K., threatening to undermine the global growth the continent previously helped power.

Figures from across the region pointed to a softer trend in the early part of the year, and U.S. first-quarter data also showed activity weakened in the world’s largest economy. Still, U.S. annualized growth of 2.3 percent beat economists’ estimates that it would slow to 2 percent.

Mixed Bag

France and U.K. slump in first quarter, Spain holds up

Source: National statistic agencies, Bloomberg surveys

Note: Euro-area, Germany & Italy 1Q data is economist estimate

The latest numbers in Europe included a slump in French economic growth and a stabilization in euro-area sentiment after three straight declines. In the U.K., the economy came to a near halt, putting in its worst performance in more than five years.

While the slowdown is partly due to storms that ripped through the region, and most officials have played it down, the European Central Bank acknowledged the shift on Thursday. If it persists, it could increase caution among policy makers about plans to pare back stimulus this year. A similar story has emerged in the U.K., where the weak data prompted investors to slash bets on an interest-rate increase in May, something once seen as a near certainty.

“Manufacturing just got stung in the first quarter,” said Claus Vistesen, an economist at Pantheon Macroeconomics. “We could slow a little bit further. The question is how policy makers react to this, because policy makers, for whatever reason, are very skittish toward data on the downside.”

The pound plunged more than 1 percent against the dollar on Friday amid the changing outlook for Bank of England policy. U.K. consumer confidence declined this month, with the uncertainty surrounding Brexit continuing to take a toll on the mood among households.

Read More

  • Bloomberg Economics’ fast reaction on France and Spain
  • Europe finance chiefs say growth cooler, but still on track 
  • Why central banks globally are mostly taking it easy
  • ECB’s Nowotny tries to talk future policy but doesn’t get far

With the economy losing a little luster, European equities have underperformed. The Stoxx 600 has fallen 2.4 percent in the past six months, lagging behind a 3.3 percent gain by the S&P 500.

There’s pressure on some businesses from the euro, which has advanced 11 percent against the dollar in the past year. L’Oreal SA earlier this month attributed a first-quarter drop in reported revenue to exchange-rate effects, despite its fastest sales growth in eight years.

Other companies have highlighted capacity constraints and rising raw material costs. Brent crude oil prices are up 45 percent in the past year.

Storms aside, the European data risks fanning speculation that the world’s synchronized boom of late-2017 is now ending, even though the International Monetary Fund last week repeated its forecast for the strongest expansion this year since 2011. Rising oil prices, fears of a trade war and jittery markets also threaten that outlook.

In France, GDP rose 0.3 percent, less than half the pace seen at the end of 2017. The U.K. economy eked out 0.1 percent expansion, its worst since 2012. There was better news from Spain and Austria, with both expanding 0.7 percent in the period. Germany, the largest economy in Europe, saw yet another fall in unemployment.

And Europe’s top officials remain confident.

“We see no change in our general approach and we believe that the recovery inside Europe, and especially the euro zone, is strong, solid, robust, that it is long-lasting,” Pierre Moscovici, the European Union’s economic and monetary commissioner, said Friday.

— With assistance by Mark Evans, Harumi Ichikura, Andre Tartar, Kristian Siedenburg, and Zoe Schneeweiss

(Updates with U.S. GDP data in second paragraph.)
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