With European businesses fretting over political uncertainties, including the impact of Britain’s exit from the European Union, economic growth in the 19-country euro zone is losing momentum, a closely watched survey found Wednesday.
However, an equivalent survey for Britain has provided further evidence that businesses there have put the initial shock of the Brexit vote behind them, thanks partly to the plunge in the pound. The drop in the currency, which this week hit a 31-year low against the dollar, makes British exports more competitive.
Neither the euro zone nor Britain are growing as fast as they were earlier this year and both their fortunes remain clouded by what happens next regarding Brexit.
British Prime Minister Theresa May confirmed over the weekend that she will invoke by March the so-called Article 50 of the EU treaty, the mechanism by which two years of talks on Britain’s exit officially commence.
Beyond that, it’s all very unclear. A key concern centres on what Britain’s trading relationship with the remaining 27 EU countries will look like.
For now, financial information company IHS Markit found that Brexit has been a drain on the euro zone, the group of EU countries that use the euro as their common currency. It has created uncertainty, which tends to hinder activity in an economy that’s failed to gain much traction over a couple of years.
IHS Markit’s purchasing managers’ index for the euro zone, a broad gauge of economic activity encompassing the manufacturing and services sectors, edged down to a 20-month low of 52.6 points in September from 52.9 the previous month.
As anything above 50 indicates expansion, IHS Markit said its index indicates the economy continues to grow, but at a quarterly rate of only 0.3 per cent – a muted pace that’s unlikely to make much of a dent in the euro zone’s 10.1 per cent jobless rate.
Of the euro zone’s four largest states, IHS Market found that only France is showing signs of gaining momentum, with growth decelerating in Germany, Italy and Spain. Italy, it added, is possibly the biggest source of concern with third quarter growth of 0.1 per cent, while Spain, in spite of a slowdown in September, remains the standout performer among the big four.
The slowing rate of growth across the region in part reflects “growing caution” among businesses about the economic outlook, often due to political uncertainty, said Chris Williamson, IHS Markit’s chief business economist.
“We see this trend persisting into next year, as the impact of Brexit is exacerbated by uncertainty surrounding elections in France and Germany alongside ongoing political unrest in Italy and Spain,” he added.
It’s not just businesses feeling the pinch in the euro zone. Eurostat, the EU’s statistics agency, revealed that retail sales in the euro zone fell 0.1 per cent in August while July’s increase was revised down to 0.3 per cent from the original 1.1 per cent.
While there are clear signs that the Brexit vote is weighing on the euro zone, the British economy appears to be holding up better than many forecasters had predicted in the run-up to the vote.
In a survey conducted with the Chartered Institute of Procurement and Supply, IHS Markit said its all-sector purchasing managers’ index for the country rose to an eight-month high of 53.7 in September from 53.2 the previous month. In July, it had tanked in the wake of the Brexit vote to 47.3.
Though the prospect of an economic recession in Britain in the aftermath of the vote has “all but evaporated,” Williamson sought to counter any suggestion that Brexit is not a live issue for the British economy.
For one, the fall in the pound has stoked inflation in the economy as it increases the price of imported goods.
And he noted that British economic growth “remains far weaker” than earlier in the year, and that optimism about the year ahead continues to run at a “subdued” level, reflecting widespread concerns about Brexit.
A big fear for many British businesses is that the May government will look for a clean break from Europe’s single market, which could threaten the pre-eminent position of London’s financial sector, see tariffs slapped on exports and foreign firms like carmaker Nissan reconsider their British bases.
“As such, the economy remains vulnerable to further setbacks and the need for policy action later in the year cannot be ruled out,” he said.Report Typo/Error