Eurozone Economic Sentiment Declines for Fifth Consecutive Month

The economic sentiment in the eurozone has witnessed a decline for the fifth consecutive month in September, although the drop was less severe than anticipated. The decline was mainly driven by a sharp decrease in consumer confidence.

According to data released by the European Commission on Thursday, the economic sentiment indicator for the 20-nation bloc, which measures both business and consumer confidence, dropped to 93.3 in September from a revised 93.6 in August.

Despite this decrease, the reading was slightly higher than the economist consensus of 92.5, suggesting a possible stabilization of weak sentiment.

Consumer confidence particularly suffered in September, with a reading of minus 17.8, down from minus 16 in August. Respondents expressed greater pessimism regarding their household financial situations as well as economic conditions within their respective countries.

The recent increase in interest rates by the European Central Bank, adding pressure on household incomes, combined with elevated eurozone inflation levels at 5.3% in August (above the ECB’s target of 2%), further impacted purchasing power in the region.

However, the declining economic confidence and concerns about a potential economic slowdown may lead the central bank to reconsider any further interest rate hikes.

The latest survey conducted by the European Commission also revealed that industrial sentiment experienced its first improvement in eight months, indicating stabilization in the sector. Nonetheless, production expectations improved while order books weakened due to weak demand. In contrast, confidence in the services sector, which significantly contributed to the bloc’s recent growth, saw a slight decrease during the month.

Among the larger eurozone economies, confidence declined the most in Spain and Italy, while Germany maintained stability and France experienced an increase, as reported by the EC.

Although the decline in sentiment was not as severe as predicted, Rory Fennessy, an economist at Oxford Economics, suggests that the euro area economy may contract in the third quarter of 2023.