Despite strong business confidence throughout the eurozone, “a closer look reveals a less rosy picture” of European economies, says Simon Tilford of the Centre for European Reform in an April blog post.
Despite the eurozone’s advanced position in comparison to the US, the author perceives Europeans as “too complacent about the ability of their economies to ride out the current storm”.
The eurozone’s apparent handling of the US recession and the euro’s “steep rise” in value masks some crucial points made by the author.
He describes a slowdown in credit growth due to current high rates in the money market and the delayed impact of last year’s interest rate hikes by the ECB.
Domestic consumption is said to be “weakening across the eurozone,” Tilford points out. As for the car industry, he stresses that there is an “even bigger decline” in Germany than in the US, because German consumers remain “as cautious as ever”.
Noting that last March’s inflation record across the EU (3.5 per cent) exceeded the target set by the ECB, Tilford argues that the “strength of inflation […] reflects a pick-up in ‘core’ inflationary pressures”.
He believes that considering the ECB’s concerns over the “rising wage settlements” in the EU, “no easing of monetary policy” will be implemented this year.
Exports from Mediterranean countries are currently being hit by the effect of the euro’s strength, which is “greater than many believe” says Tilford. On the export issue, he concludes by predicting that the EU will go through a “sharp slowdown in external demand” and believes that high inflation “rules out cuts in eurozone interest rates in 2008”.