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Europe’s mixed economic fortunes Complicated road to encouragement



PARIS-Europe's economies exhibited mixed fortunes in the first three months of the year, injecting a new source of uncertainty as central banks consider additional steps to withdraw the stimulus from the crisis era.

Figures published on Friday on gross domestic product: the broadest measure of goods and services produced in an economy recorded strong declines in France and the United Kingdom, while Spain and Austria continued to record strong growth.

At the same time, a survey by the European Commission showed that business confidence stabilized in April, suggesting that the slowdown in the first part of the year was caused by temporary factors such as bad weather and strikes. In fact, the economic forecasters surveyed by the European Central Bank have raised their growth forecasts for the year as a whole.

The mix complicates discussions at the ECB and the Bank of England, where policy makers seek clearer signals about the underlying trend before deciding to proceed with the stimulus reduction.

"The first thing we have to do is to understand exactly … if it is temporary or permanent", president of the ECB

Mario Draghi

He said at a press conference on Thursday. "If it is something that is … the beginning of a more significant decline or simply normalization after a prolonged period of very strong growth".

French statistics agency Insee said on Friday that GDP rose to less than half the pace recorded for the last three months of last year.

But the Spanish economy did not seem to encounter similar obstacles, and growth continued at the rapid pace recorded at the end of last year. And Austria's economy also suffered a strong expansion. Because the French economy accounts for a fifth of all activity in the euro zone, this points to a slowdown in growth throughout the monetary area.

The UK economy barely grew, as it registered its slowest expansion in more than five years. The pound fell in response to weak growth figures as investors considered that the BOE was less likely to raise its key interest rate next month. As in other parts of Europe, a cold weather system known locally as "The Beast of the East" played a role in the sharp slowdown as construction plummeted, but lawmakers would also be alert to any signs of further loss of momentum. durable 19659003] "The probability of a rate hike in May is now close to zero," said Samuel Tombs, economist at Pantheon Macroeconomics.

In France, the growth of business investment slowed markedly, while consumer spending – the traditional engine of the French economy – grew at an unchanged but modest pace. And there were indications that the winds against growth will not be eliminated quickly.

French companies say president

Emmanuel Macron

the elections in a platform openly favorable to business and its quick action to enact changes to labor laws awoke the so-called animal spirits. That, combined with payroll tax cuts by the previous government, set the conditions for companies to catch up with the delayed investment and hiring years.

But many French companies now warn that they are struggling to keep up with the demand as they lack capacity and skilled workers. Recent statistics show that capacity utilization rates are at levels above 85% and 42% of employers in the manufacturing industry are reporting difficulties in recruiting.

At the manufacturer of machinery components Redex, 60 miles south of Paris, CEO Bruno Grandjean ordered 14 weeks eight weeks earlier and put his 250 employees to work overtime and on Saturdays to try to cope to strong foreign demand. But that system has reached a limit since it is very difficult to manage the days of recovery and there are legal limits for overtime. It takes time, says Grandjean, to hire and train new staff.

Redex also urgently needs new machinery. Instead of buying a new machine, Mr. Grandjean hopes to get a second hand machine beforehand, but even then he may not arrive until September.

"The French industry is a bit like a burned forest – to replant an industry and grow our businesses, we need time," said Grandjean.

Bottlenecks also appear in services, since employers lack workers with the best qualifications. While French employers are struggling to recruit, they are increasingly turning to recruitment companies. Revenues at OpenSourcing, a firm in the Paris region, have increased by 40% in the first quarter after a 30% increase last year, says executive director Sebastien Canard. In some sectors, such as business development, the shortage of skilled workers is pushing up starting salaries by up to 20% compared to 2016 in some areas. That makes it difficult for some companies to adjust.

"We have to explain to the companies that the recruitment in 2018 is not like in 2015 and 2016," Grandjean said.

Writing to William Horobin at William.Horobin@wsj.com and Paul Hannon at paul.hannon@wsj.com

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