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Eurozone Economic Confidence Falls To 8-Month Low

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Eurozone economic confidence weakened more-than-expected in August to its lowest level in eight months, underscoring rising pessimism amid heightened geopolitical tensions and stagnating economic recovery.

The economic confidence index fell to 100.6 in August, the lowest score since December, from 102.1 in July, the European Commission said Thursday. The indicator was forecast to drop moderately to 101.5.

Worsened sentiment resulted from deterioration in retail trade, consumer, industry, and services confidence.

The industrial sentiment indicator declined to -5.3 in August from -3.8 in July. The expected score was -4.5. Weakened industry confidence was caused by managers' more careful views on expected production, while assessments of the current level of overall order books and the stocks of finished products stayed broadly unchanged.

The indicator for services came in at 3.1, down from 3.6 last month. Services confidence slid somewhat owing to downward revisions of managers' assessments of the past business situation and past demand, while their demand expectations remained virtually unchanged.

The consumer confidence index slid to -10 in August, a 6-month low, from -8.4 in July. The score matched flash estimate. The deterioration in consumer confidence was driven by more negative assessments of future unemployment and the future general economic situation and future savings and households' future financial situation.

The decline in retail trade confidence index doubled to -4.6 from -2.3 in the prior month. Falling retail trade confidence was the result of managers' more pessimistic views on both the present and expected business situation together with a worsened assessment of the adequacy of the volume of stocks.

The indicator for construction dropped only marginally to -28.4 from -28.2. The broadly flat development of construction confidence index reflected downward revisions of the level of order books that were partially offset by a small improvement in employment expectations.

Another survey showed that business confidence remained broadly unchanged in August. The indicator came in at 0.16 versus 0.17 in July.

Managers' optimistic appraisals of past production and export order books were offset by a marked decrease in their assessment of expected production. At the same time, managers' views on the level of stocks of finished products and overall order books remained broadly unchanged.

Sarah Pemberton, a European economist at Capital Economics, said the Eurozone recovery will remain sluggish in the third quarter. Overall, with the risk of deflation in the Eurozone growing, the pressure is mounting on the European Central Bank to take further policy action.

Earlier in the day, data from ECB showed that loans to private sector decreased 1.6 percent in July, but slower than the 1.8 percent decline seen a month ago.

At the same time, M3 money supply grew 1.8 percent year-on-year in July, faster than the 1.6 percent increase in June. The annual rate also exceeded the expected 1.5 percent.

Today's money and credit data will keep hopes of new ECB stimulus very much alive, Martin van Vliet, an economist at ING Bank NV said. He said the ECB will want to kick-start the ABS purchase programme and see the performance at the first TLTRO auction on September 18, before introducing new measures.

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