Economic Growth in Europe Hampered by Oil Prices, Report Says

(Akron/Tire Review – courtesy of China Daily) Manufacturing in the dozen countries sharing the euro declined for the first time in almost two years in April, adding to signs that record oil prices are dampening economic growth.

An index based on a survey of about 3,000 purchasing managers compiled by NTC Research Ltd. for Reuters Group Plc fell to 49.2 from 50.4 in March, according to figures available on the Internet yesterday. Economists forecast a decline to 49.8, the median of 35 forecasts in a Bloomberg survey showed. The index hadn’t dropped below 50 since August 2003, something that is indicative of contraction.

Oil prices above $50 a barrel are raising companies’ fuel bills and affecting consumer spending. Confidence in the euro region fell to a 19-month low last month as companies including Michelin & Cie, the world’s largest tyre manufacturer, blamed falling demand for a decline in sales.

“The risk is rising that the negative mood in industry will carry over into domestic demand,” said Andreas Rees, an economist at HVB Group in Munich. “If the index stays under 50 for five or six months, we’ll see a recession in manufacturing.”

The price of a barrel of Brent crude climbed to a record $57.65 a barrel on 4 April and closed at $51.09 on 29 April in London trading. Deutsche Lufthansa AG, Europe’s second-largest airline, announced increases in ticket surcharges to help cover fuel costs.

Michelin, the maker of Michelin, BFGoodrich, Uniroyal and Kleber tyres, posted lower sales in the first quarter as the company passed on higher energy and raw materials prices. The Dow Jones Euro-Stoxx 50 index lost 1.7 per cent in April as the outlook for growth deteriorated.

“We don’t see much improvement in domestic demand, and that’s holding the eurozone back,” said Henrik Gullberg, an economist at 4Cast Ltd. in London, before the report. “There’s also a weakening in the global dynamic.”

As consumer demand wanes, sales abroad, which powered European expansion last year, may not be able to compensate. Global economic growth will slow to 4.3 per cent this year from 5.1 per cent in 2004, the International Monetary Fund said on 13 April. The US economy, the destination for about a fifth of euro-area exports, grew at the weakest pace in two years in the first quarter, the government said 28 April.