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Euro zone economic morale plunges

Written by Business World, on 27th Jun 2019. Posted in EU

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Euro zone economic sentiment sank to its lowest point in nearly three years in June, with industry in particular hit by global trade tensions, European Commission data showed on Thursday.

The data is likely to strengthen the hand of those at the European Central Bank who favor easing monetary policy again if inflation in the bloc fails to pick up.

The Commission said its main indicator of economic confidence dropped to 103.3 points in June from 105.2 a month earlier. The indicator is now at its lowest since August 2016.

June's drop was bigger than expected and caps a half-year stretch in which sentiment has fallen every month except May, in another bleak sign of the health of the 19-country bloc's economy, which is grappling with weak growth and low inflation.

The survey "is likely to strengthen ECB policymakers' resolve to loosen monetary policy in the coming months," said Jack Allen-Reynolds of consultancy Capital Economics.

ECB President Mario Draghi said last week the bank will ease policy again if inflation fails to accelerate, signaling one of the biggest policy reversals of his eight-year tenure.

But there was no consensus among rate-setters on possible new moves, sources told Reuters later.

In a sign that inflation may not go up any time soon, the Commission's survey showed that selling price expectations were falling in industry and retail trade.

"This adds to the bleak outlook for price growth in the coming months and without significant improvements in data in the coming month, the ECB stands ready to act," said Bert Colijn, economist at the Dutch bank ING, adding the new figures gave Frankfurt a "further justification" for new policy action in July.

Inflation in the euro zone was at 1.2% in May, far from the 2.0% ECB target. Economists polled by Reuters forecast it will remain unchanged in June, for which first estimates will be released on Friday.

The largest fall in confidence was recorded in Germany, the biggest economy of the bloc.

Italy, the euro zone's third-largest economic power, posted the second-biggest fall matched only by the Netherlands. Confidence dropped also in France and Spain.

Sentiment in the industry sector recorded its largest drop in about eight years, equalled only by a similar fall in April, the Commission said, as the export-driven sector suffers from global trade tensions.

Business managers were also pessimistic about the euro zone's services sector, the largest in the bloc.

Consumer confidence went down as well, but did not affect sentiment in the retail trade sector, which instead rose.

In a separate release, the Commission said that its business climate indicator, which helps point to the phase of the business cycle, declined for a fourth straight month, to a level below what economists polled by Reuters had predicted. (Reuters)

Source: www.businessworld.ie

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