Euro zone sentiment drops to eight-month low as Ukraine effect kicks in
By Martin Santa
BRUSSELS (Reuters) - Economic sentiment in the euro zone fell to its lowest level in eight months in August, deteriorating across a broad front as the impact of the crisis in Ukraine began to weigh heavily, the European Commission said on Thursday.
The economic recovery in the bloc of 18 countries using the euro stalled unexpectedly in the second quarter and the outlook has been clouded by the negative effect of the worsening crisis on trade with Russia.
"It seems that the ongoing geopolitical tensions are finally starting to take their toll on overall sentiment across the euro region," said Martin van Vliet, a senior economist at ING.
The Commission's economic morale index dropped to 100.6 points from a revised 102.1 in July. Analysts surveyed by Reuters had expected a drop to 101.5.
Sentiment declined in the retail, consumer and industrial sectors, it said.
It dropped significantly in Italy, by 4.1, sending the index below its long-term average of 100 for the first time since February, and in the region's dominant economy Germany by 1.9 to 104.1.
More cautious views on expected production hit industry confidence, while deteriorating consumer confidence was driven by more negative assessments of future unemployment and overall prospects for the economy.
""The fall in economic confidence in Europe in August, particularly among industry and consumers, is not a surprise following the disappointing second quarter growth figures and the geopolitical tensions that have marked this summer," said Jyrki Katainen, European Economic Commission in reaction to the data.
The deterioration was a concern because the euro zone would not experience its hoped-for robust economic recovery if confidence was low, he said.
Consumer inflation expectations fell slightly to 8.6 in from 8.7, while producer prices expectations slipped into negative territory, standing at -0.1 in August following 0.4 in July.
The overall sentiment index remains slightly above its long-term average and is still at a level consistent with quarterly gains in GDP of around 0.25 percent, analysts said.
"Even so, today’s sentiment data adds to pressure on policymakers to do more to support the region’s recovery," said Van Vliet.
The European Central Bank will meet next Thursday but is not expected to take new policy action unless August inflation figures, due on Friday, show the euro zone sinking significantly towards deflation, ECB sources told Reuters on Wednesday.
Economists surveyed by Reuters expected inflation to drop to 0.3 percent in August from 0.4 percent.
Separately, the euro zone's Business Climate Index - which measures how businesses view the economy's prospects - dipped by less than anticipated to 0.16 points from 0.17 in July.
(Reporting by Martin Santa, editing by John Stonestreet)
