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Monday, 30 April, 2001, 09:11 GMT 10:11 UK
Fears of a European slowdown
Factory
Analysts say falling export orders will cause European production to slow
Growth in the eurozone will be slower than the European Union has predicted, both this year and next, according to the independent Centre for Economics and Business Research (CEBR).


The US slowdown has now clearly infected Europe

Adolf Rosenstock
Nomura
The forecast comes ahead of Wednesday's release of the Reuters eurozone purchasing managers index (PMI) which is expected to indicate that manufacturing within the eurozone economies almost slowed to a halt during April.

"The US slowdown has now clearly infected Europe," said Nomura's Adolf Rosenstock.

Economists predict that the PMI-index will come in at 50.5, only marginally above the 50 level: Any figure above indicates that the manufacturing sector grew during that month, any figure below indicates the sector contracted.

"April still seems OK, but there is a risk of the index falling below 50. As we go into May and June, I am quite convinced it will fall below that level," Mr Rosenstock said.

The PMI index has not dipped below 50 since February 1999.

The purchasing managers index is widely regarded as a leading indicator that can help predict the state of the economy in three to six months.

Economic outlook

Meanwhile, the CEBR predicts 2.4% economic growth this year and 2.5% next year in the twelve nation eurozone, made up of the countries that use the single currency.

That is below the forecasts made by the European Union, even though its own outlook was trimmed last week to 2.8% this year and 2.9% next year.

However, the CEBR forecast is in line with predictions made by the International Monetary Fund (IMF) which last week urged the European Central Bank to cut interest rates in the eurozone to counter the effects of a slowdown in the US.

But it predicts a slower recovery in 2002 both in Europe and the US.

Time lag

Analysts take issue with the European Central Bank's resistance against cutting interest rates and warn that the eurozone is not immune to the US slowdown.

The US economic weakness is expected to migrate to Europe as a fall in export orders feed through to production activity, analysts said.

The US equivalent of the European PMI, the National Association of Purchasing Management Index (NAPM) fell to 41.2 in January. Analysts expect Europe to follow suit.

"The NAPM bottomed about three months ago and from our research the time lag between the US and the eurozone is around six months. I guess we'll see the downtrend continue for some months," said Fortis Bank's Guy Verberne.

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See also:

25 Apr 01 | Business
EU downgrades growth estimate
26 Apr 01 | Business
IMF urges Europe to cut rates
26 Apr 01 | Business
Europe holds rates steady
25 Apr 01 | Business
Japan cuts growth estimate
22 Nov 00 | Business
Eurozone growth to slow
19 Jan 01 | Business
Brown calls for EU growth drive
20 Apr 01 | Business
EU debates economic slowdown
24 Apr 01 | Business
Q&A: Will the UK escape a recession?
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