BRUSSELS • Protectionism is starting to weigh on the euro-area’s economy.
Growth in the region softened in July on the back of weaker new orders and deteriorating confidence, according to a survey of purchasing managers published yesterday by IHS Markit. More worryingly, companies reported rising prices for raw materials, delivery delays and shortages, suggesting that tariffs — or the threat thereof — are already starting to disrupt global supply chains.
A Purchasing Managers Index for manufacturing and services fell to 54.3 from 54.9 in June, below economist estimates in a Bloomberg survey.
“Given the waning growth of new business and further slide in business optimism, the outlook has also deteriorated, notably in manufacturing, where the surveys saw worries about trade wars intensify markedly,” said Chris Williamson, IHS Markit’s chief business economist. “The big question going forward will be the extent to which domestic demand can remain sufficiently resilient to cushion the eurozone economy.”
After US President Donald Trump threatened to slap tariffs on European cars — a key export for Germany and other countries in the region — Commission President Jean-Claude Juncker is travelling to Washington this week in an effort to ease tensions.
He won’t come unarmed. The European Union has vowed to retaliate against any import duties, and China has also said it will match American sanctions on its exports.
At the moment, the euro-area can count on falling unemployment and still-robust consumer spending to support its expansion, with some countries recording labour shortages and rising wages.
European Central Bank policy makers meeting tomorrow will thoroughly analyse the data for any hints of more severe risks to the outlook.