Tuesday, 31 October, 2000, 18:36 GMT

Question marks over eurozone economies

There are signs that growth in the eurozone economies could be slowing sharply, warns the BBC's Rodney Smith.

Some nasty developments on the horizon.

There is mounting evidence that the eurozone economy really is slowing. It has been lagging the rest of the world, where some economies, as in East Asia, have been slowing for some while.

Latest French consumer spending numbers show a second month of sharp decline after a last spurt in mid-summer - down 1.2% in September after a 1.8% fall in August, and this at a time of rising inflation (up 2.2% on the year last month to the highest in four years.)

Germany, Italy follow France down

The French economy has been leading the other eurozone behemoth, Germany, in this growth cycle; these economies are now sufficiently synchronised for Germany to be likely to follow France on the way down.

Indeed there are ample signs of a slowdown in Germany already, led by a (modest) reduction in the Ifo economic institutes' growth forecast to 2.6% from 2.7%.

The French experience is supported, if that's the right word, by a marked fall in consumer confidence; the household survey index fell 10-points last month, its sharpest fall in five years exactly.

Bucking the trend, industrial production seems to be improving in Italy; but economists warn this may be more connected with factories running during the usually quiet holiday August period than any sustainable change in the direction of the Italian economy.

That may soon follow Germany and France.

Add in some of the as-yet unfelt effects of high energy prices, and winter in the Northern Hemisphere may be tougher than for some while.

Shares in trouble

And the equity markets?

My bearish friends in New York believe that we are in for an Old Testament correction; everyone is going to hurt, especially Goldilocks, in a hail of fire, brimstone, busted and broken derivatives markets, defaulting emerging markets, unsustainable vendor financing deals, and so on.

Buy gold and the euro, they say, believers to a man that the eurozone doesn't have a euro problem, but a dollar problem, and that's coming in for a swift correction.

Others, like Independent Strategy's redoubtable David Roche, are convinced this is just a transition period - but aren't all periods transitional?

And that those who miss the main signal are missing the point. This is that interest rates are peaking, or will be by the early part of next year, when investors will realise that financing is about to be cheap again, and they will dive in.

We'll see.

http://news.bbc.co.uk/hi/english/business/newsid_1000000/1000672.stm

-- Carl Jenkins (somewherepress@aol.com), November 02, 2000