BRUSSELS, 1 April 2005 — New data yesterday confirmed the threat of stagnation in Europe’s ailing heavyweight economies, struggling to kick-start a faltering recovery in the face of sky-high oil prices and record jobless tolls. Fresh figures for business and consumer confidence again dipped in March, while the European Commission also confirmed a fall in general economic hopes, both in the 12-nation euro zone and the wider, 25-member European Union.
The Economic Sentiment Indicator (ESI), which reflects the feelings of both entrepreneurs and consumers, fell by 1.4 points to 97.4 points, according to the commission, the EU’s executive arm. The figures continued an almost uninterrupted slide for the last six months, reaching their lowest point since December 2003. Another key benchmark, the Business Climate Indicator (BCI), also fell to its lowest point for a year.
“Once the likelihood of stagnation in economic growth is taken on board, the relevant question for ... policy-makers is: is this a temporary correction, or the beginning of a more lasting downturn?” asked a study by Equity Research. “We would rather opt for the former interpretation, at this stage,” said its London-based authors, Eric Chaney and Elga Bartsch. The gloom is in particular gripping so-called Old Europe countries like France and Germany, while EU newcomers in central Europe are mostly still forging ahead with growth, albeit from a lower starting position. Manufacturers face the bleakest prospects, voicing pessimism notably due to thin export order books, which reveal the weakness of foreign demand fueled by the weakness of the dollar and strength of the euro, analysts said. “The manufacturing sector is on the verge of recession,” said Chaney.
But householders are also worried, in particular due to threats to jobs - a justified concern since French unemployment grew by 0.5 percent in February, while in Germany it remains at a record high of over five million people. Despite the gloom there are some glimmers of hope, including the fact that the euro’s value, while high, is no higher than a year ago, while interest rates remain at historic lows.
The two real sources of concern are oil at over $50 a barrel and stubbornly weak consumer demand. There is no immediate prospect of lower crude prices, given strong global demand and continuing geopolitical uncertainty. Economic growth forecasts, which had pointed towards a reasonable recovery this year, are now expected to hit around 1.5 percent for 2005, compared to two percent last year.
“You can’t talk about economic recession,” said Lorenzo Codogno of the Bank of America, who predicted a clear slowdown for the first half of the year followed by the start of an uptick after the summer.
Meanwhile, the EU’s executive arm yesterday proposed slapping sanctions on a range of US products imported into Europe, in the latest blow in a long-running row over a controversial US anti-dumping law. Specifically the European Commission called for an extra duty of 15 percent to be imposed on products ranging from paper to farm and textile products, in response to Washington’s failure to repeal the so-called Byrd Amendment.
“The Commission took this latest step in the dispute over the Byrd Amendment in light of the continuing failure of the United States to bring its legislation in conformity with its international obligations,” it said. The proposed sanctions, if approved by the EU’s 25 member states, would come into effect from May 1.
In Washington, US authorities lamented the EU decision, and vowed to continue efforts to persuade Congress to repeal the law. “We’re disappointed that this step is being taken,” US Trade Rep. spokesman Richard Mills said, but added: “The United States is working to comply with the WTO decision regarding the Byrd Amendment.”
