Consumer confidence in the eurozone improved for the fifth consecutive month, reflecting optimism that the bloc’s economy could suffer at worst only a mild recession despite the energy crisis caused by the Ukraine war.
The European Commission said the flash estimate of its consumer confidence indicator for February, based on a survey of about 32,000 people across the region, was up 1.7 points to minus 19. That was its highest level for a year, though it remained below pre-pandemic levels and the long-term average and economists warned that the bloc’s economy still faces multiple challenges.
Sentiment among European consumers has been buoyed by the relatively mild winter, which helped to reduce energy consumption, boosted gas storage levels and allayed fears of potential shortages.
European wholesale gas prices have fallen to their lowest level since before Russia launched its full-scale invasion of Ukraine a year ago, increasing hopes that eurozone inflation will continue to fall after hitting a record high above 10 per cent in October.
Governments have also provided large subsidies to support jobs and limit the hit to disposable incomes from high energy prices, while wage growth in much of Europe has more than doubled to almost 5 per cent in the past year.
“A key support to consumer sentiment in 2022 was the strength of the labour market, and our sentiment indicators suggest this is set to continue at least in the short term,” said Innes McFee, an economist at research group Oxford Economics.
Eurozone unemployment fell to a record low of 6.6 per cent in December. However, within this, McFee said there were signs of job markets in Germany and Italy “softening quickly” due to the impact of the energy crisis, though France, Spain and the Netherlands were still “broadly stable”.
Although the European economy has proved more resilient than expected to the inflationary pressures caused by Russia’s invasion of Ukraine, there are other signs of deteriorating conditions in the 20-member currency bloc. The number of bankruptcy filings by EU businesses rose sharply in the fourth quarter to their highest level since records began in 2015, lifted by a flurry of new cases in Spain.
Building activity appears to have been an early victim of rising financing costs and falling house prices, as revealed by official EU data published on Monday, which showed production in the eurozone construction sector fell 2.5 per cent from November to December, taking it back below pre-pandemic monthly levels.
George Buckley, an economist in London at Japanese bank Nomura, said consumer and business surveys had “overstated the negative growth outlook” this winter, with the eurozone economy defying recession fears by growing 0.1 per cent in the fourth quarter.
“The question now, however, is whether they [the surveys] are overstating the near-term positive growth outlook,” he said, pointing out that the recent 3 percentage points of interest rate increases by the European Central Bank had created the toughest financing conditions for a decade.
Nomura forecast higher borrowing costs would drag the eurozone economy into a recession later this year, although it would be relatively short and mild — lasting three quarters and dragging output down 0.7 per cent from peak to trough.
