- Data released this week is showing that Europe’s economy is slumping further.
- Manufacturing looks like it is in a technical recession and now services, once the remaining bright light, has fallen.
- All this points to a European recession, which will be exacerbated by Brexit and the US-China trade war.
- The rising risk of a US-EU trade war over Airbus and Boeing could make it much worse.
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Europe looks like it’s spiraling towards a recession.
And if the EU and the US start a trade war over Boeing and Airbus — things could get a lot worse.
The tariffs that the US said they would impose on Europe weren’t just on Airbus parts, it was also on a lot of food products which if extended would hurt some of Europe’s larger export industries like food and agriculture from France.
The EU is expected to retaliate if the WTO gives it the go-ahead at the start of next year. As we have seen with China, this could lead to more tariffs from either side in a tit-for-tat battle.
The fear is that this downward trend won’t stop.
“The services and manufacturing slow-down will cause a recession snowball effect – hitting the jobs market, then lowering wages and stagnating price,” said Kerstin Braun, president of Stenn Group, an international trade financier.
As Braun put, “yesterday’s WTO ruling against the EU on Airbus lets Trump play ‘trade war’ with a new part of the world.”
“This isn’t going to end well for anyone, from European farmers to specialty foods distributors, to the 275,000 workers in America connected to Airbus supply chain and assembly,” Braun added.
On Wednesday stocks tanked across the continent — Germany’s DAX fell 2.8%, the FTSE fell 3.2% and the Euro Stoxx 50 shed 2.7%.
Those falls came after a huge day negative news for Europe — Boris Johnson revealed his Brexit plan which heightened the risk of no-deal, weak manufacturing data lamented the fact Europe’s factories are in decline, and the US said it would slap $7.5 billion worth of tariffs on the EU.
On Thursday, this negative outlook was cemented after the eurozone PMI figures for September were released. It showed that even services were in decline as the composite PMI for the month was 50.1, down from August’s 51.9. Services itself fell from 53.5 to 51.6.
How did we get here?
Europe’s decline has been in the process for many months. Led by German and Italy, the continent has suffered massively from its dependence on certain major economies.
“The really bad news in today’s data release is the further slump in the Composite PMI for Germany, which indicates that the economy almost certainly entered recession in Q3,” Melani Debono, Europe economist at Capital Economics, said in a note.
Germany’s economy, also Europe’s biggest, is hugely reliant on manufacturing. It has been one of the main losers from the China-US trade war.
With both countries reducing the amount they have been manufacturing due to the hikes in tariffs and drops in orders, Germany hasn’t been able to export to those major partners. As a result, the health of German manufacturing is at its worst level in 10 years.
What makes this worse if the fact “the recession in the industrial sector is spilling over to services,” Andrew Kenningham, chief Europe economist at Capital Economics, said in an interview with Business Insider.
While Italy has suffered from massive debt and political uncertainty. Confidence keeps dropping across the continent — falling to a four-year low last week.
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The European Central bank cut rates last month to try and stimulate the economy, but with rates already negative the impact hasn’t been that noticeable as now even bright sparks like France and Spain are now showing weakness.
“The average reading of Spain’s Composite PMI in Q3 was only a touch below Q2’s 52.4 when the economy expanded by 0.4% quarter on quarter, but the index declined to a six-year low in September,” said Debono. “Growth in Q3 seems to have been entirely driven by the services sector.” France likewise saw a decline last month.
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