Frankfurt, Germany – Companies across the Euro zone are voicing concerns over a decelerating economy and the growing competitive pressure from China, according to a recent poll conducted by the European Central Bank (ECB). The survey, which gathered insights from 72 large firms in the euro area between June 23 and July 2, indicates a widespread slowdown affecting both the manufacturing and services sectors, leading to a more cautious outlook for employment and price stability.
Businesses reported that a combination of tariffs, geopolitical tensions, and the resulting market uncertainty has adversely impacted both business and consumer confidence. This aligns with expectations of only very modest economic growth in the second and third quarters. Specifically, U.S. tariffs were identified as a significant drag on growth, while the escalating competition from Chinese goods was highlighted as an “increasingly important factor.”
This downward pressure on economic activity and prices is largely attributed to reduced demand, partly due to a shift in trade flows. As Asian, particularly Chinese, exporters seek alternatives to the U.S. market, there’s been a diversion of trade, leading to increased competition in the Euro zone. While this trend has primarily affected intermediate goods with limited impact on final consumer prices so far, the ECB notes that its effects are expected to broaden over time. In contrast, the retail and consumer services sectors have reported minimal impact from these factors.
Looking ahead, the poll also revealed expectations for a deceleration in wage growth. Companies anticipate wage growth to slow from 4.5% last year to 3.3% in the current year and further to 2.8% by 2026. This moderation in wage pressures could have implications for the ECB’s monetary policy decisions in the coming months.
