German factory gloom casts pall over euro-area economy

Employees of luxury carmaker Porsche on an assembly line in Stuttgart, Germany, in February. Germany's factory output contracted for a fourth month running in April.
Employees of luxury carmaker Porsche on an assembly line in Stuttgart, Germany, in February. Germany's factory output contracted for a fourth month running in April.PHOTO: AGENCE FRANCE-PRESSE

Fresh signs of malaise contradict recent cautious optimism from ECB policymakers

FRANKFURT • German manufacturing remained in a slump at the start of the second quarter, casting a cloud over the euro-area economy as well as the European Central Bank's (ECB) hopes for a quick recovery.

Factory output in Europe's largest economy contracted for a fourth month running in April, according to a survey on Thursday.

Manufacturing in the euro area also shrank, while a broader gauge of economic activity in the region declined. Fresh signs of malaise contradict recent cautious optimism from ECB policymakers that the 19-nation economy will soon turn the corner.

Governing council member Ewald Nowotny said on Wednesday that the economy should at least stabilise in the second half of the year. Yet the German government this week slashed its outlook to predict the weakest expansion in six years.

The ECB has said it will not raise interest rates this year, and more evidence of weakness across the region could force it to deploy fresh measures to support flagging growth.

The euro fell sharply after the purchasing managers indexes (PMIs) were published, and was down 0.4 per cent to US$1.1252 as of 11.40am Frankfurt time. German 10-year bonds rose, pushing the yield back below 0.5 per cent.

The euro-area figures "add to worries that the economy has failed to rebound with any conviction from one-off factors that dampened activity late last year", said economist Chris Williamson at IHS Markit, which compiles the PMI.

GROWTH EXPECTATIONS

The euro zone economy will continue to grow only slightly in the first half of the year. However, we still expect the economy to pick up again in the second half of 2019. The headwind from foreign trade should gradually ease. The latest economic data from China points to a stabilisation.

'' MR CHRISTOPH WEIL, an economist from Commerzbank.

 
 
 

The index suggests the region is running at a quarterly growth rate of just under 0.2 per cent.

Weakness remained visible in other parts of the global economy.

Japan's exports shrank for a fourth straight month in March and manufacturing there continued to decline this month. That may change if the reasons for optimism about the Chinese economy seen in some recent figures are borne out in the coming months.

In Germany, the factory PMI came in at 44.5 this month, little changed from last month and short of economists' expectations. Demand was particularly weak in the key car industry amid "some hesitancy among UK-based clients", IHS Markit said.

There was better news from the services index, which jumped to a seven-month high of 55.6, while employment in the sector rose.

In France, there were signs that activity is stabilising, but the euro area's second-largest economy is still not out of the woods. New orders fell for a fifth month and an "underlying slowdown in demand remains evident", according to the French PMI report.

"The euro zone economy will continue to grow only slightly in the first half of the year," said Mr Christoph Weil, an economist from Commerzbank. "However, we still expect the economy to pick up again in the second half of 2019. The headwind from foreign trade should gradually ease. The latest economic data from China points to a stabilisation."

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on April 20, 2019, with the headline 'German factory gloom casts pall over euro-area economy'. Print Edition | Subscribe