Consumer confidence in the eurozone climbed to a 26-month high in July as the currency area is shaking off the debt crisis, figures showed on Thursday, but its longer-term outlook remains pessimistic. The indicator rose to -14.1 in the 16-country currency area from June's -17.3, the European Commission said in a first estimate.
In the whole 27-nation European Union, confidence inched up to -13.8 in June from -14.9 in June. Consumer morale was another in a string of indicators which showed the currency area continues to recover from the worst economic crisis in decades, despite turbulence on its sovereign debt market and uncertainty about the health of banks.
"The pick-up in eurozone consumer confidence in July, following on from the improved purchasing managers' surveys for both manufacturing and services, suggests that eurozone GDP growth may hold up better than had been previously expected in the third quarter," said Howard Archer, chief European analyst at IHS Global Insight.
But spending cuts planned by many eurozone governments to prevent the Greek debt crisis from spreading to other countries are likely to hit consumer morale, which will curb private demand and curtail economic growth, analysts say. "The suspicion remains that eurozone consumers are going to remain pretty circumspect in their spending," said Archer.
"Eurozone consumer confidence is still relatively subdued, the eurozone unemployment rate is currently at a near 12-year high of 10.0 percent, wage growth is muted, and fiscal policy is being tightened appreciably in many countries. This is hardly an ideal cocktail for robust consumer spending."
Consumer morale is key for bolstering the eurozone's recovery, which has so far been fuelled mainly by exports. The Commission forecast last month that the currency area's economy will expand by 0.9 percent this year, after shrinking 4.1 percent in 2009. Despite labour market improvement in some countries, unemployment is expected to remain high - it was near the eurozone's 12-year peak at 10 percent in May - restraining people's spending power.