The eurozone economy regained some lost momentum at the start of 2019, offering fresh evidence of surprisingly resilient global growth amid lingering uncertainties about trade with the U.S. and the strength of demand for its exports from China.
At the turn of the year, the global economy appeared to be heading for a slowdown, with the International Monetary Fund and other bodies lowering their projections while asset markets sold off on worries that a broad-based downturn was a prospect.
But measures of gross domestic product for China, the U.S. and the eurozone released over recent weeks have instead pointed to a steadying or pickup in activity during the first quarter. Taken together, those economies account for more than half of world output.
However, its far from certain that the global economy will maintain its first-quarter pace of growth. In the U.S., the surprisingly strong expansion was boosted by a decline in imports that is unlikely to be sustained, while a survey of Chinese manufacturers also released Tuesday indicated activity slowed in April, a finding that echoed the message from similar eurozone surveys released earlier in the month.
The European Union’s statistics agency said the combined GDP of the eurozone’s 19 members increased by an annualized 1.5% in the three months through March, an acceleration from the 0.9% rate of growth recorded in the final quarter of 2018. Compared with a year earlier, GDP was 1.2% higher.
That pickup still left the eurozone economy trailing far behind its U.S. equivalent, which grew at a 3.2% rate in the first quarter. It also left growth in the currency area well below its 2017 rates, to which it is unlikely to return soon.
The economic slowdown that deepened in the second half of last year has prompted a change of plan at the European Central Bank, which has put off plans to raise its key interest rate this year, and announced that it will offer new round of cheap loans to banks in September. Speaking earlier this month, ECB President Mario Draghi signaled the bank could take fresh action to shore up the eurozone’s faltering economy if the outlook darkens, underscoring deepening concerns among policy makers over a slowdown that has dragged on for longer than expected.
“Today’s figures probably haven’t made the European Central Bank any wiser,” said Peter Vanden Houte, an economist at ING Bank. “The economy remains solid enough not to need extra stimulus. But at the same time not much has to go wrong to bring growth to a standstill.”
Other leading central banks — most notably the Federal Reserve — also have backed away from plans to raise borrowing costs this year. And governments are also taking steps to boost growth. Japan has passed a fiscal stimulus package, and China has enacted tax cuts and loosened credit to boost its economy. Even in fiscally conservative Europe tax cuts and spending increases are in train, including some modest stimulus from Germany.
National figures showed growth in France was steady as consumer spending rebounded. In December, violent protests by demonstrators clad in yellow reflective vests left several dozen stores vandalized or ransacked in Paris and other French cities, and took a heavy toll on the economy. While yellow vests have continued to protest every Saturday in the first three months of the year, turnout at demonstrations has sharply declined.
Measures announced in December by French President Emmanuel Macron in response to the movement, including a tax-free year-end bonus and a tax exemption on overtime pay, also have helped lift consumer spending. Mr. Macron followed up this month with a pledge to cut income tax by EUR5 billion ($5.60 billion), and a boost to some pensions. Economy minister Bruno Le Maire said Tuesday the government aims to cut income taxes next year by on average EUR180 to EUR350 per household a year.
Germany won’t release its growth figures until May 15, but economists said the figures from other parts of Europe indicate the continent’s largest economy grew at the same pace as the eurozone in the first three months of the year.
In Spain, growth accelerated as business investment jumped. However, exports from both countries slowed sharply during the quarter, an indication that a major drag on eurozone growth since the start of 2018 hasn’t reversed. The currency area has suffered from a combination of headwinds, including falling demand from the troubled Turkish economy, uncertainties about the timing and form of the U.K.’s departure from the EU, and tensions between the U.S. and its main trading partners. President Trump hasn’t decided whether to impose tariffs on automobile imports, which could hit European makers hard.
Those headwinds have fed deepening pessimism among the eurozone’s manufacturers, which are now at their most despondent since September 2014 as their expectations for export sales weaken.
In Italy, that hasn’t stopped some businesses looking overseas for sales growth. Figures released Tuesday showed the eurozone’s third-largest member emerged from two quarters of recession in the first three months of the year, but extended a two-decade-long period of relative weakness, growing only half as quickly as the eurozone as a whole.
Turin-based fountain pen maker Aurora has been concentrating efforts on increasing exports and now generates more than two-thirds of revenue outside of Italy. Chief Executive Cesare Verona wants to boost that to 90% in the coming years, in part because he doesn’t see much hope for future vigorous economic growth in Italy. The shift away from Italy has helped the 100-year-old company double revenue in the past five years; Mr. Verona is aiming to double it again in the next five years, but he still feels the drag.
“We already invest 15% of turnover, but I’d be investing even more and creating more jobs if the Italian economy were doing better,” said Mr. Verona. “Whether growth is plus 0.2% or minus 0.2% it’s not a huge difference and either way it’s certainly going to affect us negatively.”
But elsewhere in Europe, businesses that sell mostly to eurozone consumers are in a more upbeat mood, as unemployment continues to fall and wages rise more rapidly. Eurostat Tuesday said the jobless rate fell to 7.7% in March from 7.8% in February, reaching its lowest level since September 2008 as 174,000 additional people found work, 96,000 of those in Italy.
“We are looking to the future with optimism, despite the continuing economic risks,” said Stefan De Loecker, chief executive officer of Beiersdorf AG, a German maker of personal care products that Tuesday reported a 7.8% annual increase in sales during the first quarter.
Source: Dow Jones