Euro, coins – illustration photo.
Frankfurt/Brussels – Investors' confidence in the eurozone economy surprisingly decreased in March, showing a decline for the first time in five months. This follows from a report by research company Sentix. According to analysts, this, along with today's other data, signals the persistent vulnerability of the eurozone economy, which is facing the negative consequences of high inflation and rising credit costs.
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The investor confidence index fell to minus 11.1 points in March from minus eight points in February. At the same time, analysts in a Reuters poll predicted an increase in the index, to minus 6.3 points. “Although the recession has so far been averted, the overall situation remains fragile,” Sentix said.
The partial index assessing the current situation rose for the fifth month in a row, but remained in the negative zone. This signals that the economy is at best stagnating. According to analyst Manfred Hübner of Sentix, fears of a recession could soon be renewed if unfavorable economic expectations come true.
The statistical office Eurostat announced today that retail sales in the Eurozone fell by 2.3 percent year-on-year in January. They rose just 0.3 percent month-on-month, while analysts had expected a one percent rise. “It indicates a weak start to the year from a consumer perspective,” said economist Bert Colijn of ING. “Those sales figures don't give much indication that the economic recovery has started. We expect (gross domestic product) GDP to stagnate in the first quarter,” he added.
The eurozone economy has been dealing with the negative consequences of rising energy prices and rising interest rates for many months. In the fourth quarter of last year, the euro area's GDP increased by only 0.1 percent, compared to the third quarter, in which it grew by 0.3 percent. The International Monetary Fund (IMF) predicted in late January that eurozone GDP would increase by just 0.7 percent this year, after a 3.5 percent increase last year. Nevertheless, he improved the outlook compared to the October forecast, which expected growth of 0.5 percent for this year. In mid-February, the European Commission (EC) improved its estimate of this year's growth to 0.9 percent from the previously predicted 0.3 percent.
Eurostat announced last week that the year-on-year inflation rate in the eurozone decreased to 8 in February .5 percent from January's 8.6 percent. However, analysts expected a more significant decline. In early February, the European Central Bank (ECB) raised its key interest rate by half a percentage point to three percent in an attempt to curb inflation. The bank began raising interest rates last July, raising the key rate to 0.50 percent from a record low of zero percent, which it has held since 2016.
The ECB is widely expected to raise rates by another rate this month half a percentage point. ECB Chief Economist Philip Lane said today that the central bank will probably raise interest rates in the coming months. “Current information on core inflationary pressures points to further ECB rate hikes after March,” he said. Investors expect the ECB's base rate to rise to four percent this year.
