Euro-Area Economy Loses Momentum With Trade Threatening Outlook

(Bloomberg) -- Euro-area economic growth slowed in the first quarter, posing a challenge for the European Central Bank as it contemplates paring back monetary stimulus measures.

The 0.4 percent expansion was the weakest in six quarters and followed 0.7 percent at the end of 2017, a year that saw the economy post its best performance in a decade.

While the slowdown was partly caused by bad weather, lingering weakness could increase caution among policy makers about their plans for this year. A separate report on Wednesday showed that manufacturing continued to cool at the start of the second quarter. Export growth softened, with some firms blaming the stronger euro.

President Mario Draghi and his ECB colleagues have acknowledged the moderation this year, though they haven't expressed any deep concerns about it just yet. The European Commission may take a similar view when it updates its economic forecasts on Thursday. EU Economic Affairs Commissioner Pierre Moscovici said last week that growth remains “strong, solid, robust.”

One area of concern is the risk of a major trade war, with the IMF warning it could undermine global growth. European Union finance chiefs sounded the alarm on Saturday after the U.S. signaled it will reject the bloc's demand for an unconditional waiver from metals-import tariffs.

The manufacturing report from IHS Markit showed that that factory activity cooled in most of the euro zone's major economies, with only France seeing a slight improvement. However, Markit noted that the index was at its highest in more than 20 years at the end of 2017, suggesting an unsustainable pace.

“Let's not lose sight of the fact that the overall pace of expansion remains encouragingly solid,” said Chris Williamson, chief business economist at Markit. “The trend in the surveys in coming months will provide important clues as to the degree to which underlying demand may be waning and the extent to which policymakers should be concerned.”

--With assistance from Andre Tartar and Kristian Siedenburg

To contact the reporter on this story: Marcus Bensasson in Athens at mbensasson@bloomberg.net.

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Zoe Schneeweiss

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