Consumer and business sentiments across economies are looking up in the Eurozone. However, Britain’s brush with recession is likely to have an impact on the bloc.
According to freshly available data, although Brexit’s shockwaves have had widespread economic impact on the UK, in contrast economies in the Eurozone have remained resilient to these waves defying expectations of a decline.
Economists however opine that it is unlikely that Europe will be unscathed as investment sentiments and its exports are likely to be the key areas where Brexit’s shockwaves could cause damage.
“The stability/resilience in the euro area was broad-based across sectors in July and there is also nothing in the detail to suggest increased concern about the future. It is too early to draw strong implications for our growth forecast, but the initial news is certainly better than expected,” said Greg Fuzesi, an economist with JPMorgan.
Sentiments across Eurozone’s economy improved, including its services, industries, retail and its construction sector while its business climate index pointed to a phase where the business cycle is likely to shoot up.
Key indicators were forward looking, including employment and services while expectations from the manufacturing sector dipped slightly, thus reversing some of the gains made in earlier months.
Germany is again expected to be Eurozone’s key growth engine and thus preserve its forward momentum.
“Employment growth is robust and is set to stay high according to the latest sentiment indicators,” said Rainer Sartoris, an economist with HSBC. “This view is supported by the number of unfilled positions, which keep on rising. The high demand for labour should continue to support wage growth, which will continue to support private consumption.”
This outlook is in stark contrast to the data that is emerging from Britain, where consumer sentiments and business confidence across sectors have plunged to new lows.
The data emanating from Britain in recent days come on top of indicators which suggest that Britain is likely to struggle to stave off a recession.
Already British retailers have witnessed their sharpest fall in over four years with the purchasing manager’s index falling to its 20 year new low.
It is very likely that the Bank of England will cut interest rates next week, it’s first time since 2009.
For Europe, if the UK is weighed down by recession, it is unlikely that it will not spread in parts of the continent. It could weigh down if not hold back the Eurozone’s slow economic recovery.
According to a broad survey by the European Central Bank last week, Brexit is likely to reduce the Eurozone’s growth by 0.26% next year. This is a significant chunk as the bloc is growing at a rate of 1.5%.
“Combined with the significant fall in UK confidence indicators, we continue to believe the eurozone growth will not be immune to the UK decision to leave the EU,” said Clemente De Lucia, an economist with BNP Paribas.
She went on to add, “The analysis of sub-components suggests the impact is likely to take more time to be reflected in the data. We estimate the total impact of Brexit on the bloc at about 0.5 percent of GDP over the next year and a half.”