Euro zone business growth stalls in June, leaving ECB in policy dilemma

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Friday’s figures suggest that the EU’s economy is at best stagnating after a recession in the previous two quarters and a recovery is nowhere on the horizon

Euro zone business growth stalled this month as a manufacturing recession deepened and a previously resilient services sector barely grew, leaving the European Central Bank in a policy dilemma as it presses ahead with rate hikes to fight inflation.

The figures suggest that the bloc’s economy is at best stagnating after a recession in the previous two quarters and a recovery is nowhere on the horizon, even if robust holiday bookings suggest that the tourism sector could keep the bloc afloat in the near term. But economic activity is weak and the ECB has clearly failed in its goal of tightening policy just enough to contain price pressures without pushing the bloc into recession.But firms appear to be hoarding labour, keenly remembering how difficult it was to hire back workers after the pandemic and offering the ECB little relief.

The ECB has de facto promised a rate hike in July and quite a few policy-makers have also put one more move, to 4 per cent, on the table for September or October.

 

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