Eurozone Sentiment Slips as Businesses, Consumers Diverge

Dow Jones
09/29
 
 

Businesses across the eurozone grew slightly more upbeat about their prospects in September, even as consumers became more gloomy as elevated energy costs piled greater pressure on overall sentiment.

The European Commission said Tuesday that its gauge of economic confidence fell to 97.9 from 98.4 in August. A consensus of economists polled by The Wall Street Journal had expected the measure to rise to 98.9.

The decline was largely driven by a fall in consumer confidence, while sentiment in industry and services continued to improve.

"The ESI fell slightly in September but was still at a level consistent with quite strong economic growth in 3Q," said Andrew Kenningham, economist at Capital Economics.

Confidence had been gradually recovering in recent months after tumbling following the first U.S.-Israeli strikes on Iran. Despite this unexpected show of resilience, September's reading suggests continued uncertainty stemming from the energy crisis is taking a toll on consumers.

Still, the pickup in business sentiment adds to optimism seen in business surveys for September, which pointed to a further pickup in activity. The eurozone's composite purchasing managers index rose for a fourth consecutive month, climbing to 53.1 in the month from 52.0 in August, indicating an acceleration in private-sector activity.

Hopes for a recovery in sentiment had been building at the start of the year, when easing concerns about the impact of U.S. tariffs and Germany's plans to commit more than $1 trillion to infrastructure and defense spending raised hopes of a broader economic recovery.

Indeed, economists say the eurozone could see a stronger pickup in activity once energy prices begin to ease and the drag on businesses and households subsides. The 21-nation currency area was the only major economy to record an acceleration in economic growth during the second quarter, with an uptick of 0.6% driven by exports and consumer spending.

Meanwhile selling-price expectations among businesses jumped in the construction and industrial sectors, pointing to greater cost pressures from the energy shock. Still, expectations eased in services.

"This supports our view that there are so far few signs of indirect or second-round effects and in turn means that the [European Central Bank] need not hurry to tighten policy further," Kenningham said, adding that the central bank is likely to wait until December to raise interest rates.

On Monday, ECB President Christine Lagarde confirmed there remained little evidence that higher energy costs were feeding into broader price pressures in the economy.

"We see higher inflation ahead but no signs yet that it is becoming embedded," she said.

 
 

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