The eurozone’s unimpressive recovery may already be losing steam. While growth in the weakest ‘peripheral’ economies is still rebounding, the latest data suggest that some of the ‘core’ economies are under pressure. Manufacturing activity in June fell in Germany, France and Italy, for example.
It seems that the eurozone recovery’s “main engine” – German industry – is stuttering, says Capital Economics. This may be because the global recovery has proved too weak to boost Germany’s vital export sector. The strong euro doesn’t help either.
A rapid rebound seems unlikely – new manufacturing orders have been falling for the past five months, so there’s not a lot of work in the pipeline. And it’s unlikely that eurozone consumers will come to the rescue. They are saddled with high levels of debt, while poor job prospects and government cutbacks also undermine any appetite to spend.
France and Italy are suffering, because they “have been slow to deliver the reforms that have been boosting productivity and competitiveness elsewhere”, says Simon Nixon in
The Wall Street Journal.
For example, JP Morgan now expects Spain to grow by 1.5% this year, an improvement on its last forecast, reflecting economic reforms. But it has downgraded its forecast for Italy to 0%.
And Italy’s debt load is so big that it remains a threat to the entire eurozone. Unless it gets its act together, we can expect “more wobbly weeks” like the last one.