Concern about growth with the erosion of the business climate
REUTERS 24/04/2018 to 14:22

For Ion-Marc Valahu, fund manager of the Geneva consulting company Clairinvest, “the slowdown is obvious and the euro is not helping.”
“The European Central Bank is stuck. If it seeks to normalize rates, the euro is going to skyrocket and it is having trouble getting the euro to go down”, he emphasizes.

(Updated with French and Italian indicators, analyst comments on eurozone growth)
by Michael Nienaber

BERLIN/PARIS, 24 avril (Reuters) – The business climate deteriorated in April in the top three economies of the
zone euro – Germany, France and Italy – in a context marked by the strength of the euro and increased constraints on production capacities, suggesting that the growth of the Nineteen has reached its peak.

The eurozone was one of the best performing advanced economies last year. But business surveys
suggest that growth has started to stall since January due to the strength of the euro and
fears of trade war between China and the United States.

In Germany, the business climate declined for the fifth consecutive month and reached its lowest level since
mars 2017, announced Tuesday the Ifo institute.

“The optimism of German business leaders has evaporated”, declares in a press release Clemens Fuest, the director
of the Ifo. “The German economy is slowing down.”

The business climate index calculated by Ifo, were integrated for the first time data from the sector of
services, retreated to 102,1 against 103,3 (revised) a March. Economists polled by Reuters on average forecast a
index to 102,7.

In the manufacturing industry, the sentiment of business leaders deteriorated for the third consecutive month,
while remaining at a high level.

“Companies are reaching their capacity limits. Many of them cannot increase their
production and fulfill their orders because they are facing a staff shortage”, Klaus told Reuters
Wohlrabe, economist at the Ifo institute.

In services, sentiment deteriorated sharply due to a fall in six-month activity expectations.

In France, the overall business climate indicator also declined for the fourth consecutive month, even if he
remains well above its long-term average, according to data published Tuesday by INSEE. He established himself at 108 ce
this month, against 109 a March.

“The peak of growth has clearly been exceeded”, observe Denis Ferrand, general director of Coe-Rexecode, in
a tweet.

The business climate has also declined in Italy, while the third largest economy in the euro zone is still in
political impasse, in the wake of the legislative elections of 4 March who did not achieve any majority.

THE ECB Caught BETWEEN TWO FIRES

For Ion-Marc Valahu, fund manager of the Geneva consulting company Clairinvest, “the slowdown is evident
and the euro doesn't help.”
“The European Central Bank is stuck. If it seeks to normalize rates, the euro is going to skyrocket and it has to
hard to make the euro fall”, he emphasizes.

“The eurozone economy has clearly passed its peak of growth”, also believes Oliver Rakau, d’Oxford Economics,
emphasizing that growing protectionist tensions also represent a risk for exports.

According to him, the results of the various national economic surveys call into question the expected rebound
growth in gross domestic product (GDP) in the second quarter after the period of floating observed at the beginning
of year.

But other economists are less pessimistic.

François Cabau, Barclays economist, underlines in a note that the erosion of the business climate in France in recent
month shift “more likely a healthy correction (…) than a real inflection point” for the French economy, Who “still finding its cruising speed”.

“Globally, we remain confident about the outlook for the French economy”, he specifies, confirming his
forecast growth of 2,2% of GDP this year.

This forecast exceeds that of 2,0% announced by the French government in the stability program presented
mid-April and is at the top of the forecast range of international organizations (Commission
European, FMI, OECD), which extends from 1,9% to 2,2%.

Regarding Germany, Klaus Wohlrabe believes that this fifth consecutive drop in the index indicates a
“normalisation” and not a change in trend, adding that Germany is “far from a recession”.

He said he expected a deceleration in growth 0,4% in the first quarter against 0,6% over the last three months of
2017.

The Ministry of Finance and the Bundesbank also warned of the risk of a deceleration of the
German growth in the first quarter. The government will publish its forecasts on Wednesday.

The International Monetary Fund (FMI) last week raised its forecast for German GDP to 2018, tabling
now on an expansion of 2,5%.

Unlike these economic surveys, Preliminary results from the IHS Markit monthly survey highlighted
evidence of a stabilization of private sector growth in the euro zone in April.

(Véronique Tison and Myriam Rivet for the French service, edited by Wilfrid Exbrayat)