European economy slows amid global trade war fears

Growth eased to 0.3%, down from 0.4% in the first quarter.

There are fears of a global trade war over the policies pursued by US president Donald Trump (AP)
There are fears of a global trade war over the policies pursued by US president Donald Trump (AP)

Europe’s economic upswing has slowed in the second quarter amid jitters over a possible global trade war, official statistics show.

Growth in the 19 countries that use the euro currency eased to a quarterly rate of 0.3%, weaker than markets had expected and down from from 0.4% in the first quarter.

Fears that new tariffs will slow global commerce have been weighing on the outlook in the Europe, where the economy is heavily dependent on trade.

Though the economy has slowed, it continues to grow, with output up 2.1% from the second quarter a year earlier.

Figures from the European Union’s statistics agency Eurostat showed unemployment was unchanged in June at 8.3% and inflation rose in July to 2.1% from 2%.

Surveys of business confidence have recently indicated that business leaders are concerned about the impact of new import taxes imposed by US president Donald Trump on global steel and aluminium imports and on a range of Chinese goods.

The Chinese retaliated against US products, including cars and soybeans.

So far, the trade disputes seem to be affecting business confidence but that has not yet fed through to strongly dampen actual economic activity.

Mario Draghi (AP)

Despite the recent slowdown, the economy is coming off a good year, and output was up a robust 2.1% from the second quarter a year earlier.

The easing in growth has not been sharp enough to keep the European Central Bank from moving ahead with plans to slowly withdraw its monetary stimulus, which it has been providing in the form of bond purchases and record low interest rates.

The bank says it will stop the bond purchases, which help make credit cheap, by the end of the year and could start raising interest rates after the summer of 2019.

ECB president Mario Draghi has described the slowdown in the first six months of the year as a pullback from extraordinarily high rates of growth last year, and not as a sign of looming recession. Growth went as high as 0.7% quarter on quarter in both the third and fourth quarters of last year.

Excluding volatile items like oil and food, prices rose more than expected to 1.1%, from 0.9% in June. That is good news for the ECB, which is trying to push inflation to just below 2% on a sustainable basis so that it stays there after the stimulus ends.

Since the headline figure can fluctuate, the core figure is a better indicator of the underlying trend in inflation.

Press Association

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