In fact, the Eurozone has been bracing for growth rates near zero in the quarters ahead. It’s a pattern that’s unfortunately become familiar in recent years. The changing economic indicators show that while some industries start to recover, others fail to keep up the pace. With confidence in the region continuing a downward trend since March, it’s anyone’s guess as to whether this will lead to continued economic expansion.
Some recently released May data reflect a much different narrative with vulnerable signs across industries. Our manufacturing sector has always been much smaller than its share in the Eurozone economy, but started to see the first recovery signs in this sector. Better order books and decreasing inventories of finished goods are signs that manufacturers are adapting to a changing demand. Nonetheless, the impact of manufacturing on growth is still small given the continued strength of the service sector, which continues to be the dominant player.
The service sector is the Eurozone’s primary growth engine. It’s having a hard time doing that in an effective way at this very moment. Industry sources are reporting signs of softening demand along with a significant deceleration in forecasted job growth in this industry over the past several months. As businesses adapt to changing consumer behaviors and economic conditions, the service sector’s ability to drive growth is under scrutiny.
Though the impact of a powerful first quarter has pumped up the Eurozone’s GDP numbers, that momentum may be swift to capsize. Indeed, economists are projecting that growth will regress back into stagnation this quarter, is a microcosm of the macroeconomic headwinds that continue to plague the national economy. Adding to that uncertainty is the continuation of trade wars by the administration itself. As a consequence, companies are gun-shy about investing and growing.
Even in the face of primarily flat growth projections, the positive measures highlighted this past May, particularly in the area of production bring a ray of optimism. It seems that companies are beginning to change course, resulting in rising production as businesses respond to shifting market demands. This increase might not be enough to make up for the contraction seen across a range of service industry indicators.
The Eurozone has gotten used to over a decade of stagnation. Now, some of the smartest analysts out there are wondering if this is going to continue, or whether we’re due for a rebound and an economic upturn. It’s important to fight the root causes that have created stagnation. In the meanwhile, let’s make the most of the positive recovery signals we’re starting to hear from manufacturing.
As they do, it’s vital for policymakers to focus on approaches that build confidence and encourage investment. Without strong measures, Eurozone countries will become stuck in a loop of stagnant expansion and lack of security.