|Business and consumer confidence in the eurozone took a battering this month amid forecasts of a deeper recession than expected this year and jitters caused by the chaotic bail-out deal for Cyprus.
The European Commission’s monthly index of executive and consumer sentiment dropped to 88.6 from 90.1 in March, falling short of forecasts of a decline to just 89.3. Lack of confidence in the 17 nation bloc is likely to translate into lower business activity and reduced demand for exports, which could have a spillover effect for the UK.
Earlier this month, the International Monetary Fund, slashed its forecasts of the single currency area from a decline of 0.1pc to a fall of 0.3pc. Annamaria Grimaldi, an economist at Intesa Sanpaolo, added that “the flawed bailout in Cyprus has revived uncertainty in Europe”.
The region’s powerhouse, Germany, was not immune to the drop in confidence, with sentiment worsening “significantly”, the Commission said. “Employment plans were revised downwards across business sectors, contrasting with the easing of consumers’ unemployment expectations,” the report found.
The Commission’s study also had figures for the UK, where “economic sentiment deteriorated significantly”. For the 10 European Union members outside the eurozone, employment prospects also worsened.
However, despite the drop in measured confidence, manufacturing among non-eurozone members saw an improvement in their competitive position to other overseas markets and there was an acceleration in investment plans.
Weakness in the eurozone could convince Mario Draghi, president of the European Central Bank, to cut interest rates later this week from 0.75pc to 0.5pc. A majority of economists polled by Bloomberg are forecasting a cut, but the core countries of Germany, the Netherlands and Austria are resistant due to rising inflation in their economies.