Pessimistic outlook of the eurozone’s economic recovery

European countries are becoming more pessimistic about the outlook of the eurozone’s economic recovery, reflecting that confidence did improve with the recent new stimulus measures announced by the European Central Bank.

The sentiment is also driven by the lackluster pace of economic growth and the growing conflict in Ukraine.

Businesses have said that they expect selling prices to be weaker than before the stimulus measures were announced, while consumers lowered their expectations for inflation.

On Monday the European Commission released figures of the latest Economic Sentiment Indicator – an indicator of business and consumer confidence. It fell from 100.6 in August, down to 99.9 in September, bringing its long-term average down. Most analysts had forecast a drop to 100.0.

Consumer confidence declined to minus 11.4 from minus 10.0, highlighting the gloomy outlook among consumers.

The lack of confidence in the eurozone means that businesses and consumers will not be spending more over the new few months and it also suggests that economic growth in the area is not likely to pick up again any time soon.

Second quarter growth in the eurozone was flat, which pressured the ECB to start a series of of stimulus measures on September 4. It will be reducing interest rates and engage in two different bond buying programs.

These measures won’t impact the economy yet, however, the survey shows that businesses do not consider the ECB’s measures to have what it takes to improve the overall outlook of the bloc’s economy.

On Tuesday the European Union’s statistics agency will release data for the eurozone and on Thursday the central bank’s governing council will meet in Italy.

Analysts forecast a weakening of 0.4-0.3 percent in September, which would be a record low over the past five years.

Germany’s annual rate of inflation in September remained unchained at 0.8 percent and despite Spain reporting consumer prices falling over the past year, its rate of decline dropped to 0.3 percent, compared to 0.5 percent in August.

In a report of the world economy economists wrote:

“The ECB should catch up with the other major central banks in an aggressive policy of quantitative easing. A forceful intervention with outright purchases of sovereign bonds – as well as private securities – is the correct tool for dealing with excessive downward pressure on inflation.”

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