Europe’s grim economic news is piling up, with business activity in its two biggest economies continuing to shrink. In Germany, the contraction eased in October, but the economy is still at risk of slipping into a period of stagnation as its auto and manufacturing industries struggle with weaker demand. Meanwhile, France saw a “sharp and accelerated” decline in demand, especially in manufacturing, according to S&P Global’s purchasing managers index. The two countries are seen as the main culprits of a broader slowdown in the region that already pushed the European Central Bank to accelerate monetary easing last week. The continued weakness is sounding alarm bells at the ECB to continue with interest rate cuts, but views among its officials, led by President Christine Lagarde, are starting to diverge as the institution’s 2% inflation target moves within reach. While some of the more dovish officials are openly discussing the need for steeper interest-rate cuts as soon as December, their hawkish colleagues are urging caution. Adding to the argument for patience, a spate of positive earnings reports lifted European shares on Thursday.
Europe’s trade spat with China is intensifying. Beijing is said to be pressuring its automakers to pause expansion plans in Europe because of planned tariffs of as much as 45% on Chinese electric vehicles imports. China is telling manufacturers — which are winning the race to make less expensive EVs — to put active searches for production sites in the region on hold, delay potential new deals and keep a low profile amid the negotiations over EU tariffs. The directive — which isn’t a mandatory order — may fuel tensions as both powers vie for car-industry dominance.
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