It’s Getting Real: Euro-Area Growth Slows as Trade Fears Mount

Bloomberg.com — 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 Tuesday 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 euro-zone economy.”

After U.S. 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 traveling 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 labor shortages and rising wages.

European Central Bank policy makers meeting on Thursday will thoroughly analyze the data for any hints of more severe risks to the outlook.

“For now, the health of domestic demand seems encouragingly solid, but any feed-though of trade worries to other sectors will be a key area of concern to an already cloudier-looking outlook,” Williamson said.