Euro-area economic confidence unexpectedly fell in April, increasing pressure on the European Central Bank as it considers unprecedented steps to avert the risk of deflation.
An index of executive and consumer sentiment decreased to 102 from a revised 102.5 in March, the European Commission in Brussels said today. The median estimate in a Bloomberg News survey of 27 economists was for an increase to 102.9.
“The setback remains modest after the recent months’ strong gains, though today’s data suggest that there’s less chance that euro-zone growth may go beyond a quarterly growth trend of 1.8 percent on an annual basis,” said Holger Schmieding, chief economist at Berenberg Bank in London.
ECB President Mario Draghi said in Amsterdam last week that the Frankfurt-based central bank may start broad-based asset purchases if the inflation outlook worsens, preparing the ground for one of its most radical policies ever. Consumer price growth probably accelerated to 0.8 percent in April, a separate Bloomberg survey shows.
Draghi told German lawmakers yesterday that the ECB stands ready to embark on quantitative easing, though such a program isn’t imminent and is relatively unlikely for now, according to a euro-area official present at the meeting. While the ECB expects a prolonged period of low inflation, Draghi doesn’t see the imminent threat of falling prices, he told lawmakers.
The European Union’s statistics office publishes its estimate of April inflation tomorrow, followed by the March unemployment number on May 2. The ECB announces its next interest rate decision on May 8.
The euro pared gains against the dollar after today’s data were released, trading at $1.3865 at 12:33 p.m. in Frankfurt, up 0.1 percent on the day.
Industrial confidence fell to minus 3.6 from minus 3.3 in March, according to today’s report. Sentiment in the services industry declined to 3.5 from 4.5.
“Sentiment is reflecting a deterioration in the global environment,” said Christoph Weil, an economist at Commerzbank AG in Frankfurt. “With the crisis in Russia and Ukraine, and the Chinese economy’s slowdown, growth is unlikely to accelerate in the euro area.”
The European Commission forecasts euro-area economic growth of 1.2 percent this year and 1.8 percent in 2015.
The EU put Russian Deputy Premier Dmitry Kozak on an expanded sanctions list today, joining the U.S. in protesting Russia’s actions in Ukraine. The EU and the U.S. say Russia hasn’t lived up to an accord signed April 17 in Geneva intended to defuse the confrontation between the Ukrainian government and pro-Russian separatists supported by the authorities in Moscow.
On the bright side, consumer confidence increased to minus 8.6, better than the 8.7 reading the commission initially reported on April 22. That follows a report showing European car sales jumped more than 10 percent in March for a seventh consecutive monthly gain.
Today’s report is “a bit of a surprise after the rise in consumer confidence and the improvement in German business confidence, suggesting that there is concern about Russia, Ukraine and other emerging markets,” Schmieding said.