Consumer and business confidence indexes fell in the euro zone in November. In Europe as in the US, maintaining consumer confidence is key to economic recovery. So far, the European consumer confidence index has not fallen as much as the business index, but rising unemployment could be the straw that breaks the camel’s back. Euro zone governments will need to spur economic investment if they are to keep the economy afloat.
Business and consumer sentiment in the 12 countries that use the euro, measured by respective confidence indexes, continued their downward spirals in November, dropping to their most pessimistic levels in years. The consumer confidence index fell two points to a reading of minus 12 in November, while business sentiment also slid two points to minus 18- further exacerbating levels that were already at a four-year low.
The only positive news is that consumer confidence remains stronger than business confidence. As a result, consumer spending levels have remained relatively stable, driving the euro-based economy for most of this year. The European and UK central banks’ efforts to cut rates in an effort to stimulate the economy have contributed to contradict the initial dire expectations resulting from the dismal confidence figures. Unfortunately, this has not been enough to prevent almost every sector of the European economy from deteriorating further, leaving only consumers as the final outpost of economic strength.
Unemployment could put an end to that, as it draws ever closer to 9%. It could well sabotage consumer confidence, as Europeans brace for sharp reductions in income and save more in preparation of an extended period of uncertainty. Overall sentiment, which fell to a reading of 98.6 from 99.1 the month before, coupled with drops in capacity utilization (measured quarterly, which fell to 81.9% in October from 83% in July), provide reminders that, once consumer spending becomes more conservative, that the prospects of recovery will become less likely in the near-term.
The ultimate reality is that euro-based nations must spur economic investment to compensate for increasing jobless rates and assume the burden of keeping the economy afloat.
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