The Malaysian Reserve

Euro-area biz show warning signs amid solid growth

30/08/2018 Monaghan, Ireland Combilift © Patrick Bolger

By BLOOMBERG

LONDON • Euro-area businesses are starting to feel the heat from recently intensified trade tensions even as economic growth remains solid for now.

IHS Markit’s Purchasing Managers’ Index for manufacturing and services rose to 54.5 in August from 54.3 in July, marginally exceeding a prior flash estimate. The increase masks concern over business prospects, with expectations dropping to their lowest in 23 months.

Data so far signal third-quarter (3Q) economic growth may match the 0.4% rate recorded in the previous three months, but the “downturn in optimism raises questions over whether this pace of growth can be sustained into the 4Q”, said Chris Williamson, an economist at IHS Markit.

As the European Central Bank is moving toward ending unprecedented bond buying, frictions between the US and its trade partners over tariffs have raised concerns that economic growth could slow markedly and cloud the inflation outlook.

Input costs rose sharply in August, according to yesterday’s report. Factory-gate inflation was “most acute” in Germany, while price trends remained “relatively subdued” in Italy.

Germany and France saw momentum accelerating to six and twomonth highs respectively. A gauge for Italy fell to its lowest level in nearly two years and a measure for Spain signalled the weakest expansion in almost five years for the 3Q.

In the UK, the dominant services sector expanded faster than expected in August.