Euro-zone confidence indicators point to contraction
31 May 2012
The raft of confidence indicators released yesterday by the European Commission all painted a similar picture of retrenchment in the euro-zone with the fall in the headline economic sentiment measure from 92.9 to 90.6 consistent with a contraction in output in Q2. The main index now stands at its lowest level since October 2009, with significant falls in the services sector (-0.2 to -0.8), manufacturing (-0.5 to -0.8) and business confidence (10.1 to -10.3). Euro-zone CPI, released later today, should decline to 2.4% from 2.6%, but has been quite sticky of late, owing to energy price pressures. As energy prices soften, the index should fall back below the ECB's target of 2% in the coming months.
European markets closed down yesterday, but may seek some respite in the unexpectedly positive UK Gfk consumer confidence measure for May. The index improved from -31 to -29, despite a consensus forecast of -32, with slowing inflation a factor in the renewed optimism of the UK consumer. Whether this is a temporary bounce or a sustained improvement in the index remains to be seen. UK Nationwide house prices should see little improvement, when data are released later today, as the UK property market continues to flat-line. Recall that the Rightmove index of asking prices was flat in May, so the final sales prices captured in the Nationwide measure would be expected to be a good deal lower in the current buyers' market.