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Europe slows and sanctions yet to bite

Wednesday, August 20, 2014 - 01:48

Euro zone private business growth slowed more than expected in August, despite widespread price cutting. As Ciara Lee reports the fact that the survey doesn't include the impact from sanctions over Ukraine is a worry.

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It provides a gloomy read for the ECB - Markit's latest survey suggests the euro zone's recovery remains fragile. Manufacturing and service industry activity dwindled as the region's private business growth slowed more than expected this month, despite widespread price cutting. Phyllis Papadavid is from BNP Paribas. (SOUNDBITE) (English) PHYLLIS PAPADAVID, SENIOR FX STRATEGIST, BNP PARIBAS, SAYING: "Certainly the weakness in the growth data will be a source of concern to the European Central Bank in their deliberations. That and the weakness in inflation we're seeing is clearly impacting on sentiment for the euro in particular." The euro zone is also yet to feel the full effect of escalating tensions with Russia over Ukraine. Europe stung Moscow with economic sanctions, prompting a tit-for-tat response. Germany is Russia's biggest trading partner in the EU. It's growth - now in its 16th consecutive month - remained solid but it did slow. The picture in France is one of stagnation. The country remains the sick child of the euro zone with factory activity putting a dampener on any positive data. French President Francois Hollande says the euro is overvalued, as does ECB chief Mario Draghi. Head of FX at RBC Capital Markets, Adam Cole doesn't agree. (SOUNDBITE) (English) ADAM COLE, HEAD OF FOREX, RBC CAPITAL MARKETS, SAYING: "We think the euro is about fairly valued on most measures. If in terms of its longer term competitiveness the fair value estimates are 1.20-1.30 ish, so if it is overvalued, it's only marginally so." Struggling to support growth and prevent dreaded deflation, the ECB is again giving banks access to another round of cheap cash. But there may be more trouble to come - the business expectations index plummeted to its lowest reading in a year.

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Europe slows and sanctions yet to bite

Wednesday, August 20, 2014 - 01:48

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