Trump-Xi Trade Truce May Help Reverse Euro-Area Growth Slowdown

(Bloomberg) -- The trade truce U.S. President Donald Trump and his Chinese counterpart Xi Jinping agreed this weekend may help prop up growth in the euro area.

The 19-nation currency bloc has seen a steady downward trend in economic indicators since the start of the year, a development often pegged to uncertainties around foreign demand and investment amid increased global protectionism. A particular factor weighing on output, however, is the region's flagging exports to China, according to Commerzbank Chief Economist Joerg Kraemer.

Demand for European products has weakened this year as the more-than-$12 trillion Asian economy grappled with softening growth, a hangover from a financial cleanup and uncertainties over U.S. tariffs. At a Group of 20 meeting in Buenos Aires, Trump and Xi decided to put their trade war on hold.

“In this case, what is good for China, and the U.S., is good for Europe,” said Louis Kuijs, chief Asia economist at Oxford Economics in Hong Kong. “The impact on Europe may not be huge but it should be positive, including via more confident Chinese consumers.”

Commerzbank's Kraemer says the euro area's 2019 growth trajectory depends “above all” on China. A detente on trade -- paired with lower taxes, spurred infrastructure and increased lending to businesses -- should shield the Asian nation from an economic slump, also limiting the risks of a severe downturn in the euro area.

--With assistance from Anthony Palazzo.

To contact the reporters on this story: Carolynn Look in Frankfurt at clook4@bloomberg.net;Xiaoqing Pi in Frankfurt at xpi1@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Jana Randow, David Goodman

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