Why Is data on Economic Growth So Disappointing?

European stocks dipped on Tuesday, matching global stock market drops, as May business expansion statistics rekindled investor fears about slowing economic growth and monetary policy tightening.

By 0818 GMT, the pan-European STOXX 60 index had down 0.8 percent, giving up some of Monday’s 1.3 percent gain. According to preliminary Purchasing Managers’ Index data, eurozone company growth slowed this month as a scarcity of raw materials hindered industrial expansion. After statistics earlier revealed that Japanese manufacturing increased at its weakest pace in three months, this heightened concerns about the global economy. Meanwhile, Germany, Europe’s largest economy, continues to develop; it has aid from a strong comeback in services, despite a grim demand forecast due to inflation and supply difficulties. German stocks fell by 0.8 percent.

EU Economy Under Pressure

“The clouds are gathering above the eurozone economy,” ING senior economist Bert Colijn remarked. “And the real question is how long the service industry can continue to benefit from customers… when buying power is under severe strain owing to excessive inflation.” “Inflationary pressures are scarcely abating, and… this is a warning that the European Central Bank is going to stay extremely hawkish,” he added; indicating a time of continuous stock market pressure.

All major industries were down, with utilities leading the way. The STOXX 600 was dragged down by consumer discretionary equities such as luxury brands; they suffer when disposable money is scarce. The French index, which luxury firms dominate, fell more than 1%; the fall made it the worst performer among regional rivals. Asian markets were down, while stock futures in the United States sank dramatically, with Snapchat owner Snap Inc (NYSE: SNAP) weighing in after issuing a profit warning. Snap’s Frankfurt-listed shares have dropped 35%.

The STOXX 600 index is now down more than 12% from the year’s highs in early January. Markets have been pushed down by concerns about monetary policy tightening to manage rising inflation, the Russia-Ukraine crisis, and COVID-19 limits in China restraining demand in the world’s second-largest economy. In March, Europe’s volatility index hit two-year highs. Individual equities surged 4.7 percent after the Norwegian advertising business Adevinta reported higher-than-expected first-quarter core earnings. Tele2’s stock dropped 7.8% after investment firm Kinnevik sold a 7.2 percent interest in the company.

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