Trade Decline And Brexit Jitters Slow Down Eurozone Economy

The highest and fastest drop in manufacturing output in nearly seven years was experienced by the eurozone economy in September because of the slowdown in global trade and threat of the no-deal Brexit which brought the economy of the zone to a near standstill.

The bad performance of the eurozone economy was led by negative contribution from the German economy following the revelation in a survey of private sector activity that economy was in its worst position since 2009 because of increasing threat of further slowing down of international trade due to the trade war and the tariffs imposed by the United States and China as a part of their trade war.

The German economy has been facing a downturn since the last one year which has accelerated in recent months and that has affected the 19-member currency bloc’s economy because the German economy is considered to be a major driver for the economy of the region.

In September, the value for the for the purchasing managers’ index (PMI) for manufacturing for Germany dropped from 43.5 in August to 41.4 in September which was much lower than the 50 point mark that is typically the border line between an expanding and a contracting economy.

The hit to the manufacturing sector of the export dependent German economy also further deepened the manufacturing recession throughout the eurozone with the sharpest drop in in output since 2012 in the region. Further, optimism among business executives also dropped to its lowest level since the last seven years.

The car manufacturing companies were the worst hit because of an increase in the US and Chinese import tariffs and amid the chaos that surrounded the possibility of a no-deal departure of the United Kingdom from the European Union next month.

A warning against the UK leaving the EU without a deal, was issued last weekend by chiefs from 23 automotive business associations across Europe in a joint statement. The statement cautioned such a situation would result in huge additional costs and potential job losses throughout the industry – including in the UK.

The services sector in Germany however continued to expand in September which is a composite part of the overall composite PMI of Germany, apart from the manufacturing industry. However the growth in the services sector was not enough to stop the lowering of the overall PMI of the country from 51.7 in August to 49.1 in September.

In September, the eurozone composite PMI dropped to 50.4 from 51.9 in August which marked the worst output performance in the manufacturing and services sector since June of 2013.

The move earlier this month of the European Central Bank to bring down interest rates further and provide a package of stimulus measures to stimulate the EU economy appears to be justified because of this data of the slowdown of the largest economy of EU, published by  the data firm IHS Markit, said analysts.

A drop in new orders for goods and services for the first time since the beginning of the year resulted in the slowdown in the German economy, which was the steepest fall since June of 2013, the IHS Markit said.

“Today’s PMIs make grim reading, particularly for Germany. Since the peak of the German manufacturing PMI in December 2017, there have been a few occasions where signs of stabilisation have been snuffed out,” said Simon Wells, chief European economist at HSBC.

(Adapted from TheGuardian.com)

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