Eurozone growth in 'low gear' at start of second quarter

AP News
Posted: May 04, 2016 6:31 AM
Eurozone growth in 'low gear' at start of second quarter

LONDON (AP) — As winter turned to spring, the eurozone economy appears to have lost some — but by no means all — of the momentum that saw it grow faster than the U.S. in the first quarter of the year.

A brace of economic indicators Wednesday showed business activity moderated in the past couple of months.

Eurostat, the European Union's statistics agency, said retail sales across the 19-country single currency bloc fell by 0.5 percent during March from the previous month. That was weaker than market expectations for a more modest fall of 0.1 percent and brought an end to a period of four straight monthly gains.

The decline is likely to raise the risk that the eurozone's 0.6 percent first-quarter growth rate estimated by Eurostat last week may be revised down.

And separately, in a closely monitored survey, financial information company Markit said its purchasing managers' index for the region — a broad gauge of business activity — fell modestly to 53 points in April from 53.1 the previous month. Though still above the 50 threshold indicating expansion, the reading has fallen from the start of the year.

According to the firm, the eurozone is in a "low gear" that suggests growth over the full year would be a "steady but unspectacular" 1.5 percent. That's down from the rate of about 2.5 percent that last week's official first-quarter figures were pointing to. In the first quarter, the U.S. only grew by an annualized rate of 0.5 percent.

Despite the slowdown in the eurozone, Markit chief economist Chris Williamson sought to contrast the performance of the region with that of the U.S. and even the U.K.

He said the more aggressive stimulus measures from the European Central Bank, which has cut interest rates and is creating new money through a bond-buying program, are "helping to drive a steady recovery."

He added that the survey also indicates that domestic demand within the eurozone is picking up and that, alongside the weaker euro, is helping to offset sluggish demand from outside the bloc.

"Further comfort can be drawn from the upturn in service-sector business optimism for the year ahead, which has edged up since the start of the year to signal one of the highest degrees of sentiment seen over the past five years," he said.

As always within a region of 19 countries, there are big disparities, according to Markit. While business confidence hit three-month highs in Germany and Italy and a four-month high in Spain, Williamson said optimism moderated in France, "suggesting all is not well in the region's second-largest economy."

Even before Wednesday's indicators, few economists expected the eurozone to match its first-quarter performance, given a number of headwinds, many of which are external to the region, such as the British vote on June 23 on whether to leave the European Union and China's performance. Within the eurozone, economic confidence could be jolted by any renewed worries over Greece's future in the single currency bloc as well as the upcoming Spanish general election.