Sunday, 11 November 2018 14:20

European Central Bank In Panic Mode As Economy Stalls

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Authored by Andrew Moran via,

The eurozone could not borrow from the momentum of the U.S. economy in the third quarter as economic growth slumped to a tepid 0.2%, the slowest rate in more than four years.

With the 19-nation currency bloc beginning to stagnate, and the heavyweights failing to post significant gains, Brussels is in panic mode, likely leaning on the European Central Bank (ECB) for further stimulus.

Economists originally anticipated growth of 0.4%. But global trade woes, tumbling business confidence, Italian distress, and the gradual dissipation of an accommodative monetary policy all contributed to the poor numbers in the July-September period.

Italy fell into stagnation, failing to record any growth. Rome has been contending with a debt crisis, sending the yield (interest rates) on government bond prices higher. Officials are embroiled in a contentious battle with the EU because their borrowing plans violate the trade bloc’s rules. There is now talk of a Keynesian-style fiscal stimulus to rev up the national economy.

France, which endured a terrible first half, reported a 0.4% increase, lower than the market forecast of 0.5%. The economy gained on surging business investment, household consumption, and net trade. While the figures are commendable, French Finance Minister Bruno Le Maire did not help matters when he suggested that the eurozone is not prepared to contain a new financial crisis, adding that “it is in no one’s interest that Italy be in difficulty.”

Germany, the economic engine of the eurozone, will not publish its Q3 numbers until mid-November. But the Bundesbank has warned that growth might have flat-lined in the previous quarter. Researchers do predict a recovery for Berlin in the final quarter of 2018, driven by a resurgence in the automobile sector and falling unemployment.

The data sent the euro plunging to an intraday low against the greenback.

What Happened?

There were some bullish spots in the Eurostat report, but it was primarily bearish. What happened?

The Royal Bank of Canada (RBC) placed the blame on Germany’s lackluster manufacturing for dragging down the economy. But Chinese demand, which was up nearly 20% last year, has cooled to just 3% this year, causing many businesses to fear that the U.S.-China trade spat is creating a ripple effect.

Figures also pointed out that industrial output declined, with overseas sales taking a hit.

Some are eyeing Italy as a key scapegoat because not only is the country embroiled in a debt crisis but its manufacturing sector is about one-fifth smaller than it was in 2008. But some analysts say that these trends are affecting global financial markets more than the main street economy – for now.

With the ECB on the cusp of raising interest rates, at a time when governments plan to increase spending and slash taxes, there are concerns that debt levels will spike in the coming months. This might impact...

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