Euro-area economic confidence fell for the first time this year, and consumers’ outlook for inflation weakened, pointing to subdued price pressures.
The European Commission’s index of executive and consumer sentiment fell to 109.2 in May, from a revised 109.7 in April. While that fell short of economists’ expectations, the gauge remains close to the highest level in a decade. Another measure showed that 12-month price expectations declined for a second month.
The report may reinforce European Central Bank President Mario Draghi’s view – last expressed just a day earlier – that the region still needs “an extraordinary amount of monetary policy support”. Draghi has urged patience in outlining an exit strategy from negative rates and a €2.3 trillion ($2.6 trillion) bond-buying programme, even as he’s acknowledged that the upswing is becoming increasingly solid and broadly based.
Confidence Decline
The decline in the confidence gauge marks the first modest stumble by the euro-area economy, which has shown continued signs of strength this year. IHS Markit, which publishes a monthly activity index, said last week that the economy is growing at a pace that would warrant tighter monetary policy if it weren’t for weakening inflation.
The commission report, along with recent inflation data, will feed into the Governing Council’s meeting next week in Tallinn, to assess the health of the 19-nation economy.
“Although euro-zone growth is strong, inflation still disappoints,” said Bert Colijn, an economist at ING in Amsterdam. “This implies that no more than a change in tone of communication is to be expected from the ECB next week.”
Euro-area consumer-price growth probably slowed to 1.5% this month, from 1.9% in April, economists predicted. Spain’s inflation rate fell more than forecast in May, dropping to 2% from 2.6%, while further data is expected to show a drop in Germany.
The decline in the euro-region confidence gauge was led by services and retail sectors. The commission said that consumers’ confidence was “robust” in May, and their outlook for the economy turned more positive. Industry sentiment was “broadly stable”.
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