Line chart of Eurozone consumer confidence (flash estimate) showing Crisis-hit Eurozone consumers remain subdued

Dip in eurozone consumer sentiment raises fears over recovery

Eurozone consumer sentiment has ebbed slightly after a brief recovery from the sharp economic downturn caused by the pandemic, fuelling economists’ fears that the pace of the rebound has begun to slow.

The European Commission’s headline consumer sentiment indicator fell to minus 15 in July, below its minus 14.7 reading in June and well below the consensus expectation of minus 12 among economists polled by Reuters.

Concerns over new local outbreaks of coronavirus and the bloc’s shaky labour market could be undermining the recovery, according to Bert Colijn, senior economist for the eurozone at ING.

The data “causes doubts about the pace of recovery in a critical phase for the eurozone economy, as reopening after lockdowns should coincide with strong demand if lasting damage is to be minimised”, Mr Colijn said.

In the early stages of the bloc’s recovery, retail sales showed a record rise as consumers across Europe went on a shopping spree after lockdowns were lifted.

But recent high-frequency indicators suggested that, while travel and tourism are picking up from very low levels, some areas of the economy remain well below normal and there are few signs of any improvement in Europe’s labour market, based on the number of job vacancies posted online.

Melanie Debono, Europe economist at Capital Economics, said Thursday’s consumer sentiment data suggested the recovery was losing momentum, although consumption should gradually pick up in the coming quarters.

“While consumers may continue to spend some of the savings that they accumulated during lockdowns, anxiety about a second wave of infections will keep some people away from the shops and certain social activities,” she said.

Data from the French Statistics Office showed that spending in restaurants in June was down 20 per cent from pre-crisis levels, while spending on transport was down by more than 40 per cent, Ms DeBono noted.

The commission’s wider gauge of pan-EU consumer confidence remained unchanged at minus 15.6 points, below its long-term average of minus 10.5.

But other national surveys suggest that consumer confidence is rising in some parts of the continent. In Germany, a temporary reduction in value added tax is helping lift consumer morale, according to GfK’s consumer climate study for July. In the Netherlands, consumer confidence edged up slightly to minus 26 from minus 27 in June, the national statistics board reported.

Separate data published on Thursday in France also suggested that the economic recovery was beginning to falter.

While confidence among the country’s manufacturers has picked up after hitting an 11-year low in April, a monthly sentiment survey showed a weaker reading than economists had expected. Sentiment was gloomy in all sectors that the indicator tracks, with the exception of agriculture and farming.