The threat of a prolonged dislocation of international commerce from a trade war has put policymakers back on alert
The threat of a prolonged dislocation of international commerce from a trade war has put policymakers back on alert © Bloomberg

The eurozone is developing a two-speed economy as the growing impact of global trade tension weighs on some countries while others benefit from their stronger domestic demand base.

Economic measures published on Thursday showed encouraging signs for France, but pointed to continued gloom for export-led economies such as Germany and Italy. Both countries are severely affected by the rising US-China trade tensions and weakening global demand.

France’s statistics office revealed rising consumer spending in July and a stronger than previously estimated economic expansion in the second quarter. 

France’s GDP growth was revised up to 0.3 per cent compared with the previous quarter, up from an initial estimate of 0.2 per cent. This sustained the rate of expansion in the first three months of the year of the year, with domestic demand making the largest contribution. 

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Across the eurozone economic sentiment rose marginally to 103.1 in August, from 102.7 in July, according to data from the European Commission. This was thanks to a sharp improvement in Spanish sentiment and marginal increases across the other major economies except Italy.

German industrial sentiment improved in August — rising to -11.2 in August from -13 in July — but it remained well below last year’s average and below that of any other major eurozone economy. 

German inflation eased in August to the lowest rate in almost three years, according to preliminary estimates by the Federal Statistics Office. Meanwhile the Federal Labour Office reported an additional 4,000 unemployed people in August compared with the previous month, in a worrying sign that the country’s industrial woes are spreading to the labour market, which has hitherto been resilient. 

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“The negative impact of the industrial meltdown of the last 12 months has started to spread to other parts of the German economy,” said Carsten Brzeski, chief economist at ING Germany.

Italy’s economic data were also disappointing: on an annual basis industrial orders fell 4.8 per cent in June, the worst reading in nearly three years, with an even sharper fall in foreign orders. 

Italy’s output has barely expanded in the last year, the worst performance in the EU, and Italy’s August economic sentiment reading is “consistent with the economy stagnating at best in the third quarter”, said Melanie Debono, European economist at Capital Economics. 

Overall, signs of economic stabilisation across the single currency area are not strong enough or sufficiently geographically broad-based to prevent the ECB from taking further action to stimulate the economy, according to economists. 

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The better than expected August sentiment reading “does not alter our view that the ECB will cut rates in two weeks’ time before announcing a fresh round of quantitative easing, probably in October”, said Ms Debono.

Germany’s disappointing consumer price growth in particular could make the case for more monetary stimulus, economists said. 

“Low August inflation in Germany bolsters the case for a new round of monetary easing at the ECB’s September meeting,” said Mr Brzeski. 

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