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European firms seen cutting prices, output to cut record inventories

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BERLIN (Reuters) – Economic uncertainty and slackening demand have pushed inventories at European companies in March this year to their highest level since 2012, credit insurer Euler Hermes said.

The Euler Hermes report, released on Thursday, found that European companies were stockpiling more than companies anywhere else in the world, highlighting the vulnerability of Europe’s export-based economies to global trade tensions.

With storage space at a premium, companies are expected to cut prices and reduce production to shrink stockpiles as quickly as possible, Kai Gerdes, analysis director at Euler Hermes Rating, said, adding that the impact of this would be to lower inflation.

“We estimate that inventory levels in Europe are between 20% and 30% higher than normal,” he said.

Over the euro zone as a whole, the average number of days of inventory outstanding at large companies rose to 52 in 2018, up by four days compared to the previous year. Growth was especially strong in Spain (up by 11 days), and Germany (six days).

“Next to the Spanish and the Italians, German companies have stocked up the most,” Ron van het Hof, head of Euler Hermes in Germany, Austria and Switzerland, said.

“The reasons are rising global uncertainties, especially since the second half of 2018, weakening world trade, and demand, which has grown more slowly than expected in some sectors,” he said.

Small and medium companies had increased stocks especially strongly in Italy and Germany, the report found.

(Reporting by Thomas Escritt. Editing by Jane Merriman)

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