Eurozone confidence falls, bodes ill for recovery

Consumer confidence in the euro zone deteriorated much more than expected in July, adding to worries about the health of the bloc's economic recovery, European Commission preliminary data showed on Wednesday. The 18 countries using the euro saw consumer confidence falling to -8.4 in July from a revised -7.5 in June, showing the worst reading since April, when it stood at -8.6.
Analysts surveyed by Reuters expected the bloc's consumer confidence to edge down to -7.5 in July from originally reported -7.4 in June. "A second successive, and deeper dip in euro zone consumer confidence in July will fuel mounting concerns that already weak growth is faltering," said Howard Archer, chief European economist at IHS Global Insight.
"While consumer confidence in the euro zone is still clearly above its long-term average, the recent about-turn in sentiment is an unwelcome and worrying development," he added. In another sign of the fragility of the recovery, euro zone industrial production dropped sharply in May with only the energy sector thriving. Confidence is suffering partly because of the conflict in eastern Ukraine, where separatists backed by Russia are fighting government forces. As a result, the European Union is considering economic sanctions against Russia, but such action would also hurt the euro zone economy.
"It is likely that consumers in many Eurozone countries have become more worried about the outlook in the face of some recent disappointing economic news and increased geopolitical tensions," Archer said. The crisis deepened last week following the downing of a Malaysian airliner and European policymakers threatened Moscow on Tuesday with harsher sanctions.
Germany, the growth engine of the 9.6 trillion euro economy probably stagnated in the second quarter in the face of political tensions abroad, the Bundesbank said on Monday, is still poised to grow this year. In the whole European Union of 28 countries, consumer sentiment fell to -5.5 from -4.3 in June, the Commission flash estimate showed.