The outlook for '98: Europe afraid hopes will be dashed

Most of Europe, which was counting on this year's rebound in growth carrying on into 1998, is wondering if the turmoil in Asia will temper the recovery.

Germany, France and Italy emerged from a slump at the beginning of 1997, as a stronger dollar led to a boom in exports, and domestic businesses recovered in the second half. Opinions vary on how much the Asia slowdown will cut demand for Europe's exports.

"There will be no decisive growth acceleration in 1998," said Ralf Grossmann, an economist at Caisse des Depots et Consignations. "The domestic economy won't compensate for slower export growth."

Others see bright spots. "For inflation and interest rates, the tendency is favourable," said Hans-Dieter Lauer, manager at Baden-Wuerttembergische Kapitalanlagegesellschaft. "Until the problem of Asia is sorted out, no one can raise rates."

Asian markets dropped on concern about the region's economic growth. That in turn fed concern that countries might default on their foreign borrowings. In Japan, already blighted by recession, exports suffered.

Germany, Europe's biggest economy, will grow 2.2 per cent this year and 2.6 per cent next year, the IFO predicted, adding that Asia will have only a "slight" dampening effect.

That may be optimistic. Among the major European economies, Germany exports the most to Asia. Sales to the region for example at Siemens, Germany's largest electronics company, grew an average 19 per cent in 1995 and 1996, outstripping all other areas. German banks may suffer the most. They led the world in lending to Asia in 1996. Dresdner Bank faces Asian losses of $463m, Paribas said.

France may be more vulnerable to Asian repercussions. While its exports to Asia represent a small portion of the overall economy, sales there are growing faster than anywhere else. The OECD said the French economy will expand 2.3 per cent this year and 2.9 per cent next year on the basis that "strong exports, and relatively accommodating monetary conditions should boost growth above potential in 1998-99."

Societe Generale, Paribas and other French banks are carrying loans to Asia that could end up being written off. Societe Generale stock A shares are down 20 per cent since October.

Companies like LVMH Moet-Hennessy Louis Vuitton and Hermes International, whose luxury brands are among the world's best-known, also face a threat. LVMH sells almost half of its luxury luggage and champagne goods to Asia, and its shares have fallen 42 per cent since the start of August. Hermes shares are down 30 per cent.

French companies also may find it harder to compete as Asia's currencies devalue. Shares of Usinor, Europe's second-largest steelmaker, have slid 26.1 per cent since October amid concern over plunging Asian currencies, while Yieh Loong Company, a Taiwanese steelmaker, entered the European market. Its orders are flowing into Spain and Italy at a rate of 40,000 tons per month.

In Italy, where moderate growth this year is expected to pick up speed to reach 2 per cent in 1998, lower interest rates could kindle growth. Italian rates are among the highest in the EU. With 1997 annual inflation seen below 2 per cent, the Bank of Italy will be able to lower the cost of money without fanning inflation.

Among the four biggest European economies, the UK remains the exception. Next year, as continental growth accelerates, Britain's will slow, after reaching an annual 3.7 per cent rate during the third quarter. A series of interest rate rises, tax increases and a strong pound are likely to crimp growth.

Ian Thorpe had Rio 2016 in his sights
world cup 2014A history of the third-place play-offs
Tommy Ramone performing at The Old Waldorf Nightclub in 1978 in San Francisco, California.
peopleDrummer Tommy was last surviving member of seminal band
Life and Style
Swimsuit, £245, by Agent Provocateur

Diving in at the deep end is no excuse for shirking the style stakes

The Mexico chief finally lets rip as his emotions get the better of him
world cup 2014
Spectators photograph the Tour de France riders as they make their way through the Yorkshire countryside
voicesHoward Jacobson: Line the streets for a cycling race? You might just as well watch a swarm of wasps
Life and Style
lifeHere's one answer to an inquisitive Reddit user's question
Life and Style
Several male celebrities have confessed to being on a diet, including, from left to right, Hugh Grant, Benedict Cumberbatch and Ryan Reynolds
...and the weight loss industry is rubbing its hands in glee
peopleDave Legeno, the actor who played werewolf Fenrir Greyback in the Harry Potter films, has died
Arts and Entertainment
'Eminem's recovery from substance abuse has made him a more potent performer, with physical charisma and energy he never had before'
arts + entsReview: Wembley Stadium ***
ebookA unique anthology of reporting and analysis of a crucial period of history
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Information Security Manager (ISO 27001, Accreditation, ITIL)

£70000 per annum: Harrington Starr: Information Security Manager (ISO 27001, A...

Biztalk - outstanding opportunity

£75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...

Trade Desk Specialist (FIX, Linux, Windows, Network Security)

£60000 per annum: Harrington Starr: Trade Desk Specialist (FIX, Linux, Windows...

Service Desk Analyst (Windows, Active Directory, ITIL, Reuter)

£35000 per annum: Harrington Starr: Service Desk Analyst (Windows, Active Dire...

Day In a Page

A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

A History of the First World War in 100 Moments

Peace without magnanimity - the summit in a railway siding that ended the fighting
Scottish independence: How the Commonwealth Games could swing the vote

Scottish independence: How the Commonwealth Games could swing the vote

In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport
Out in the cold: A writer spends a night on the streets and hears the stories of the homeless

A writer spends a night on the streets

Rough sleepers - the homeless, the destitute and the drunk - exist in every city. Will Nicoll meets those whose luck has run out
Striking new stations, high-speed links and (whisper it) better services - the UK's railways are entering a new golden age

UK's railways are entering a new golden age

New stations are opening across the country and our railways appear to be entering an era not seen in Britain since the early 1950s
Conchita Wurst becomes a 'bride' on the Paris catwalk - and proves there is life after Eurovision

Conchita becomes a 'bride' on Paris catwalk

Alexander Fury salutes the Eurovision Song Contest winner's latest triumph
Pétanque World Championship in Marseilles hit by

Pétanque 'world cup' hit by death threats

This year's most acrimonious sporting event took place in France, not Brazil. How did pétanque get so passionate?
Whelks are healthy, versatile and sustainable - so why did we stop eating them in the UK?

Why did we stop eating whelks?

Whelks were the Victorian equivalent of the donor kebab and our stocks are abundant. So why do we now export them all to the Far East?
10 best women's sunglasses

In the shade: 10 best women's sunglasses

From luxury bespoke eyewear to fun festival sunnies, we round up the shades to be seen in this summer
Germany vs Argentina World Cup 2014: Lionel Messi? Javier Mascherano is key for Argentina...

World Cup final: Messi? Mascherano is key for Argentina...

No 10 is always centre of attention but Barça team-mate is just as crucial to finalists’ hopes
Siobhan-Marie O’Connor: Swimmer knows she needs Glasgow joy on road to Rio

Siobhan-Marie O’Connor: Swimmer needs Glasgow joy on road to Rio

18-year-old says this month’s Commonwealth Games are a key staging post in her career before time slips away
The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice