Breaking News

Faltering euro zone economy to suffer from U.S.-China trade dispute: Reuters poll

EconomyApr 16, 2018 08:21PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters. FILE PHOTO: European Central Bank (ECB) headquarters building is seen in Frankfurt

By Mumal Rathore and Rahul Karunakar

BENGALURU (Reuters) - Euro zone economic growth, already moderating in part from a stronger currency, will take a further hit from the ongoing trade dispute between the United States and China, according to a majority of economists polled by Reuters.

Still, that will not deter the European Central Bank from ending its asset purchases program this year and hiking interest rates in 2019, even though inflation is expected to remain well below the central bank's target until at least 2021.

While the consensus for growth in the latest Reuters poll of over 100 economists taken April 6-16 was little changed from a poll last month, private business surveys suggest euro zone growth momentum has peaked.

The range of forecasts in the latest poll showed lower highs and lower lows for growth in the region compared with last month.

"The start to 2018 has been disappointing for the euro zone economy, especially after such a strong 2017. While the outlook remains favorable, it does look like peak euro zone growth has already been reached and that 2018 will show some moderation," said Bert Colijn, senior euro zone economist at ING.

Businesses across the euro zone have been hurt by a rising euro, ending the first quarter with their weakest expansion since the start of 2017.

The single currency, up about 3 percent this year, is expected to gain a further 4 percent against the dollar in a year, according to a separate Reuters poll. [EUR/POLL]

In the latest poll, over 85 percent of 55 economists who answered an extra question said the trade spat between the U.S. and China will damage the euro zone economy, including one respondent who expects the impact to be significant.

"Trade in goods weakened in February, even ahead of global trade concerns taking center stage. Whether it is the strong euro or a looming trade war, it is not difficult to see the outlook for euro zone exports becoming more challenging," said ING's Colijn.

"With the European Union taking a prominent place in the global supply chain, the euro zone economy could get hurt even without being an essential player in a trade war," he added.

After growing at its fastest pace last year since the financial crisis in recent quarters, the euro zone economy is forecast to lose some momentum and average between 0.4 percent and 0.6 percent in each quarter this year and next.

Full-year GDP growth was expected to average 2.3 percent this year and 2.0 percent next, unchanged from last month.

Price pressures remain weak. Inflation is forecast to be below the ECB's target of just under 2 percent for the next three years.

Inflation is predicted to average 1.5 percent this year, 1.6 percent next and 1.7 percent in 2020.

Despite that, the ECB, which removed the easing bias with reference to its quantitative easing (QE) program last month, is widely expected to end its 30 billion euros worth of monthly asset purchases by year-end.

While no major announcement is expected when ECB policymakers meet on April 26, the central bank is forecast to take its deposit rate 15 basis points higher to -0.25 percent in the second quarter next year, as it was in the previous poll.

The ECB is also expected to hike its refinancing rate in the final quarter of next year, a quarter later than forecast last month.

Over 90 percent of almost 60 economists said they were confident the central bank would take rates higher before the next downturn, including 11 respondents who were very confident.

But not everyone agreed, and the remaining five economists were not confident.

"We expect the ECB to keep rates low for longer in part because it is winding down its QE program due to technical limits having been reached rather than its inflation objective. As this unfolds, it will need to keep rates low to limit the fall-out effects of this exercise on financial conditions," noted Elwin de Groot, chief euro zone economist at Rabobank.

"Furthermore, even if growth stays above or close to trend, the passthrough to higher wage growth and from higher wages to core inflation is likely to be relatively slow. Hence it is not a given that the ECB will raise rates before the next downturn hits."

(For other stories from the Reuters global long-term economic outlook polls package see)

(Polling by Sarmista Sen and Anisha Sheth; Editing by Ross Finley and Hugh Lawson)

Faltering euro zone economy to suffer from U.S.-China trade dispute: Reuters poll

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email