The sub-index measuring consumer optimism about the economic outlook declined to 97.8 from 101.7, while the measure of households' perception of inflation over the past 12 months climbed to its highest in 25 years.
This consumer confidence reading follows news yesterday that the eurozone is sliding closer to ongoing stagflation – low growth combined with rising inflation – as we learnt that private sector output across the zone probably contracted this month for the first time in five years.
The eurozone purchasing managers’ index dropped from 51.1 in May to 49.5 in June, the first contraction in activity since July 2003. The risk of a recession in the 15-country region has therefore increased. This now contrasts sharply with the robust growth seen at the start of the year. But the same survey also showed inflationary pressures mounting – especially in the service sector, where prices rose at the fastest rate for more than seven years. That will certainly alarm the ECB, which saw the annual eurozone inflation rate leap to 3.7 per cent in May, the highest for 16 years, and is braced for a rise as high as 4 per cent in coming months.
So what we may well be seeing here is the prospect of higher official eurozone borrowing costs hitting already weak sentiment. At the end of the day the ECB could well end up getting much of the blame for the sharp economic slowdown which is now in the offing, which certainly wouldn't be just, but then again they do not seem to have sufficiently anticipated what may now be about to happen. Certainly inflation needs to be kept under control, but we need a mid term discourse which really rises to the challenge of the situation, and which doesn't simply limit itself to the repetition of old, and already well worn, truisms.
Adding to the growing gloom, Germany's GFK consumer confidence index dropped again this month.
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