Euro-Area Economic Confidence Declines to Lowest Since June

  • Indicator falls to 103.8 in February from 105.1 in January
  • ECB may unveil new stimulus measures to counter global risks

Euro-area economic confidence fell for the second month in February, bolstering the case for the European Central Bank to unleash a fresh round of stimulus.

An index of executive and consumer confidence slumped to 103.8 from a revised 105.1 the previous month, the European Commission in Brussels said on Friday. That’s the lowest since June and compares with a median estimate for a drop to 104.3 in a Bloomberg survey of economists.

Against a background of falling commodity prices and ongoing concerns about global growth, ECB President Mario Draghi has said the central bank is ready to recalibrate monetary policy as early as March to protect the recovery and prop up inflation, which risks becoming entrenched near zero, well below its goal of just under 2 percent.

“It’s a bad set of figures that reinforce the case for more stimulus,” said Michael Schubert, economist at Commerzbank AG in Frankfurt. “It’s not just concerns about inflation expectations, the risk is now that weakness begins to impact growth. ”

Sentiment among consumers fell to minus 8.8 from minus 6.3 the previous month, the report showed, while confidence in the services sector declined to 10.6 from 11.5 in January. Measures for retail and industrial confidence also dropped.

Disappointing Indicators

The latest data follows a string of disappointing indicators. Inflation in the euro area rose less than initially estimated in January, adding to the ECB’s challenge. The closely-watched German Ifo Business Climate survey declined for the third consecutive month in February. In France, business confidence also dropped for the month even as sentiment in manufacturing rose. Across the region, the euro area’s purchasing managers’ index, a gauge for economic activity, fell the most in more than a year in February.

While the euro area has so far shown resilience to external headwinds from emerging markets, an oil slump and most recently weakness in the financial sector, it may not be enough to counter disinflationary pressures and boost growth. The ECB may be prompted to unveil a fresh round of economic stimulus when it meets next month to offset global risks.

ECB options going into the March 9-10 meeting include increasing monthly asset purchases from the current 60 billion euros ($68 billion) as well as cutting the deposit rate further into negative territory, or the introduction of new measures. 

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