August 1, 2008 | posted by Michael Baxter in Eurozone |

As you probably know, the baton is supposed to be with the Eurozone now. US and British consumers have run out of puff. The Eurozone is supposed to be out of its wilderness years, and taking off where the US and UK left off, and carrying the torch of growth.

But, instead, the last few weeks have seen the news from Europe get worse and worse. Many economists are now speculating that the region could hit recession, while the US and UK still keep their heads above water.

The last few days have seen two rather nasty pieces of news break in the region of the euro. But at least Germany is still lighting the way forward, and in France a certain amount of reality has finally dawned on the all-too-safe workplace.

One of the key indicators of the Eurozone economy is the Economic Sentiment Indicator (ESI). This is a composite index taking into account confidence amongst consumers, and in the industrial services and construction sector.

July saw this index fall to its lowest level since March 2003. At 89.5, it implies Eurozone growth in the months ahead of just 0.5 per cent.

The index was down across the board, but in Italy it is downright awful.

Yet, while sentiments fall, Eurozone inflation just gets worse.

In July, Eurozone headline inflation hit 4.1 per cent. It had already passed the all-time high a few months back, so from now, on any rise is a new record – and so it was in July.

Alas, the official data does not reveal news on core inflation for a few more days. But what we can say is that up to now, core inflation, that’s with food and energy taken out, has remained modest. So there are no signs then that the rising oil and food prices are creating a spillover effect.

Even so, the European Central Bank has shown itself to be inclined to take a much tougher stance on inflation than the Fed and Bank of England. So, while the fall in confidence indices suggests rates need to fall, it seems unlikely this will happen for a while.

But at least there is good news from Germany, where data out yesterday revealed that unemployment in Germany remained at a 16-year low in July. Unemployment stands at 7.8 per cent.

Last week, the parliament in France finally passed a law to scrap their 35-hour working week. This was, of course, one of the key reforms Mr Sarkozy has been gunning for. The French economy desperately needs reform of the labour market – but it will take some time before this reform impacts upon the economy.