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European economy stumbles as confidence drops to four-year low

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The threat to growth comes from the trade war, which creates uncertainty for investors, says Ms Lagarde.

Madrid

THE outlook for the euro-area economy has taken another hit, with confidence in industry dropping to its lowest in four years in a sign that the impact of uncertainty from trade tensions and Brexit is getting worse.

Industry managers are growing more worried about demand from customers and have downgraded the outlook for employment.

The decline dragged an overall measure of sentiment down more than economists had forecast, to its weakest reading since early 2015.

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The euro, which has fallen almost 4 per cent in the past three months, was little changed at US$1.0925 as of 11.12am Frankfurt time.

Manufacturing across the euro area, and particularly in Germany, has been hammered by a cocktail of uncertainty stemming from trade tensions between China and the United States, and negotiations over the pending exit of the United Kingdom from the European Union.

The European Commission, which publishes the monthly sentiment report, said industry managers were "markedly more pessimistic" on all fronts, including production expectations, the current level of overall order books and the stocks of finished products.

Services, which has so far proved more resilient, showed a slight improvement in confidence in September. Still, that figure remains near its lowest level since mid-2015. Consumers were also less gloomy.

Recent weeks have been marked by even greater uncertainty radiating from the UK over Brexit. Spain's acting Prime Minister Pedro Sanchez said in an interview this week with Bloomberg News that a no-deal scenario was the biggest threat to Spanish economic growth.

Central banks have responded with interest-rate cuts and other measures, while international organisations have repeatedly warned that protectionism is damaging global growth.

The Organisation for Economic Co-operation and Development cut its euro-area outlook this week and said it sees the world economy growing just 2.9 per cent this year.

"It is not in the baseline to have a recession," incoming European Central Bank president Christine Lagarde told Bloomberg Television, when asked about the euro zone.

"That said, it's mediocre growth, it's at risk because of essentially one major threat, which is the trade war that we see developing or brewing and the uncertainty it generates for investors." BLOOMBERG