Eurozone's lackluster economic performance in recent months adds to fears that the economy has contracted in the second quarter, and gives room for the European Central Bank (ECB) to reduce interest rates at next month's meeting, IHS Global Insight Chief UK and European Economist Howard Archer said Friday.
The economist noted that given the widespread weakness in economic activity in the region Eurozone is badly in need of concrete progress on fiscal and banking integration to ease sovereign debt tensions.
According to IHS Global Insight, the further weakness in consumer confidence, and record deterioration in manufacturing and services activity, as the latest PMI survey showed, signals that Eurozone has suffered renewed, appreciable GDP contraction in the second quarter, and prospects for the third quarter look pretty dim.
Preliminary data from the European Commission showed that consumer confidence in the euro area suffered a renewed fall in June after picking up in May, with the relevant indicator dropping to -19.6 after improving to -19.3 in May, which is well below the long-term average. Sentiment was evidently hit by heightened concerns of an imminent Greek exit, the deepening crisis in Spain as well as fears over the economic situation and outlook amid recent largely poor data.
The renewed deterioration in sentiment reinforces concern over the prospects for consumer spending in the coming months given the high and rising unemployment, generally muted wage growth and tightening fiscal policy in many member countries.
On the positive side, the squeeze on Eurozone consumers' purchasing power has been eased by inflation falling back in May from its peaks in late 2011, and the prospects of further falls in inflation are currently being boosted by sharply reduced oil prices, the firm said.
by RTT Staff Writer
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