Euro-area economic confidence drops

29/01/2016 09:51 AST

Euro-area economic confidence slumped more than analysts predicted in January, strengthening the European Central Bank’s case for increasing stimulus.

An index of executive and consumer confidence fell to 105 from a revised 106.7 in December, the European Commission in Brussels said on Thursday.

That’s the lowest since August and compares to a median estimate for a drop to 106.4 in a Bloomberg survey of economists. The figure for December was previously reported at 106.8.

“We’ve had increased turbulence in financial markets, and that normally has a spillover effect on confidence,” Ken Wattret, chief euro-zone market economist at BNP Paribas SA in London, said before the report.

While the external growth backdrop has worsened, “the trend is still positive; the trend still suggests that economic conditions in the euro area are resilient,” he said.

ECB President Mario Draghi has held out the prospect of yet-looser monetary policy as early as March to nurture growth and bring inflation back in line with the institution’s goal of just under 2 per cent.

The Governing Council extended quantitative easing by six months in December and cut the deposit rate to minus 0.3 per cent before holding policy steady this month.

Sentiment in the euro area deteriorated across most sectors amid uncertainty over global economic prospects.

The Federal Reserve opened the door to a slower pace of interest-rate increases as China struggles to cope with financial-market turmoil and a slowdown in growth.

A gauge for confidence in euro-area industry slid to minus 3.2 in January from minus 2 in December, according to the report.

A measure for services fell to 11.6 from 12.8. Sentiment among consumers and builders also deteriorated. The euro was little changed after the report and traded at $1.0907 at 11:09am Frankfurt time.

It was up 0.1 per cent on the day.

Euro-area inflation stood at just 0.2 per cent in December, and a Bloomberg survey of economists projects it ticked up slightly to 0.4 per cent in January.

Agencies