Bert Colijn, Research Analyst at ING, notes that the economic sentiment in the Eurozone declined from 105 to 103.8 in February.
Key Quotes
“This was worse than analysts expected (104.3) and reflects the somber mood about the Eurozone economy in the beginning of the year, although the indicator is still above its long-term average. The weak external environment is clearly impacting the business sector, as both manufacturing and services indicated weakening sentiment. Consumers even experienced the largest one-month drop in confidence since 2012. Both businesses and consumers are clearly spooked by concerns about the strength of the global economy and financial markets, geopolitical risks and a looming Brexit.
For manufacturing, the global weakness is impacting current business, as orders, production and exports went down. The service sector indicated in this survey that recent demand was actually better than in January, but that expectations about future demand went down.
As selling price expectations went down in the construction and manufacturing sector in February, while staying flat in services worries about low inflation are intensifying again. As inflation expectations in the market are decreasing significantly and current price developments seem to be deteriorating, all systems are go for the ECB to act next month.
Without any hard data for the first quarter, it is difficult to say how the downbeat survey results translate to output growth. Will consumers and businesses act on their negative sentiment or in other words: are they walking the walk or just talking the talk?
Last summer, consumer confidence declined on the latest leg of the Greek crisis and the Chinese stock market crash, but consumption growth accelerated in the third quarter. With unemployment coming down, oil prices low and a weak euro, quite a few conditions for growth are benign, but large downside risks remain apparent. In a sense, the Eurozone currently resembles a 50-year old overweight smoker: there are a lot of downside risks, but the base case for the short-term remains fairly decent.”
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