Europe Stays in Gloomy Mood as Germany Slashes Its 2019 Outlook

(Bloomberg) -- Euro-area confidence extended its worst losing streak in a decade and Germany's government added to the pain by slashing its forecast for the region's largest economy.

With countries across the 19-nation currency zone facing a range of domestic risks and trade uncertainties, sentiment tumbled to the lowest in more than two years in a report Wednesday. Germany predicted its economy will only grow 1 percent in 2019, the least in six years.

The euro area has turned into a weak spot of the world economy. The European Central Bank acknowledged risks have “moved to the downside,'' and when the IMF cut its global growth forecast this month, Germany and Italy had the biggest downward revisions.

In its German outlook, the government in Berlin downgraded its 2019 prediction to 1 percent from 1.8 percent, citing in part the deteriorating global trading environment.

The report will fuel the pessimism about Europe after an almost non-stop deluge of disappointing economic indicators recently. And it may continue on Thursday, with figures forecast to show Italy probably slipped into recession at the end of 2018. GDP figures for Spain and the euro area are also due.

Investors have been adding to bets in recent weeks that the weak economic data will keep interest rates lower for longer. German 10-year yields touched their lowest level in more than two years this month and there's speculation that they could drop below zero once again.

Federal Reserve Chairman Jerome Powell will offer his view of the U.S. outlook when he holds a press conference on Wednesday. He's also had to take note of a changed global backdrop and is expected to emphasize patience in raising interest rates.

Earlier on Wednesday, France, the euro area's second-largest economy, reported disappointing domestic performance in the fourth quarter. A surge in exports boosted growth to 0.3 percent, but household expenditure stagnated. A separate report showed a huge plunge in December alone, when retailers were dogged by Yellow Vest protests.

Still, France will wait until April to revise its forecasts, officials say. For now it's sticking to the prediction of 1.7 percent expansion in 2019.

In a sign that weaker global growth has started to bite, euro-area industry orders -- particularly those from abroad -- slumped at the start of the year. Osram Licht, a German manufacturer of lights, has said ongoing trade conflicts, weak growth in China and general political uncertainties hurt first-quarter revenue.

“Headwinds, mainly from the external commercial environment, are increasing,” said Economy Minister Peter Altmaier.

--With assistance from Barbara Sladkowska, Harumi Ichikura, Catarina Saraiva and Paul Dobson.

To contact the reporter on this story: William Horobin in Paris at whorobin@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Brian Swint, Kevin Costelloe

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