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Euro-Area Economic Confidence Unexpectedly Fell in June

Pro-Russian Militants in Donetsk
Pro-Russian militants take the military oath during the ceremony in the centre of the eastern Ukrainian city of Donetsk on June 21, 2014. Photographer: Alexander Khudoteply/AFP/Getty Images

Euro-area economic confidence unexpectedly declined in June, led by industry, as tensions in Ukraine and the single currency’s strength hindered efforts by the European Central Bank to boost lending and growth.

An index of executive and consumer sentiment fell to 102 from a revised 102.6 in May, the European Commission in Brussels said today. The median forecast in a Bloomberg News survey of 27 economists was for an increase to 103.

“The global slowdown in the first quarter, the euro’s strength and geopolitical tensions are weighing on consumer and industrial confidence,” said Pernille Bomholdt Nielsen, an analyst at Danske Bank in Copenhagen. “The impact should be temporary and start to fade, enabling consumer and business confidence to improve again in the second half.”

The ECB introduced an unprecedented range of measures, including a negative deposit rate, this month to fight anemic price growth and spark demand. Efforts by the ECB and European Union leaders to spur the economic recovery have been undercut in part by the violent conflict in Ukraine, where a week-long truce that expires today has been repeatedly flouted by pro-Russian separatists.

The euro-area economy will expand by 0.3 percent in the second and third quarters, accelerating to 0.4 percent in the final three months of the year, according to a separate Bloomberg survey of economists.

‘Geopolitical Risks’

“The risks surrounding the economic outlook for the euro area continue to be on the downside,” ECB President Mario Draghi said on June 5. “Geopolitical risks, as well as developments in emerging-market economies and global financial markets, may have the potential to affect economic conditions negatively.”

Industrial confidence declined to minus 4.3 from minus 3.1 in May, according to today’s report. Sentiment in the services industry rose to 4.2 from 3.8. Consumer confidence slipped to minus 7.5.

Vueling Airlines SA Chief Executive Officer Alex Cruz this month said there is evidence of some recovery in Italy, the region’s third-largest economy. Meanwhile, data last week showed that European car sales rose for a ninth month in May as registrations gained 5.2 percent in Germany, Europe’s largest market.

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