Eurozone’s economic sentiment weakened more-than-expected in September to its lowest level in over four-and-a-half years, largely due to the persistent weakness in manufacturing, while the morale improved slightly in services, survey data from the European Commission showed on Friday.
The economic sentiment index fell to 101.7 from 103.1 in August, marking the lowest reading since February 2015, when it was 100.9.
Economists had forecast a modest fall to 103. In July, the reading was 102.7.
“The decrease in euro-area sentiment resulted from a substantial deterioration of confidence in industry, and a slight decline in retail trade, while confidence improved among consumers and remained broadly stable in services and construction,” the commission said.
The industrial confidence index fell to -8.8 from -5.8 in the previous month, driven by manufacturers’ weaker production expectations, the current level of order books and the finished goods stocks. The latest reading was the weakest since July 2013, when it was -9.6.
Morale in the retail trade weakened slightly in September with the relevant index sliding to 0.1 from 0.6 as retailers were more cautious about the adequacy of the volume of stocks.
The consumer confidence index climbed to its four-month high of -6.5, confirming the flash estimate released on September 20. The modest improvement largely reflected households’ more positive assessment of the general and personal economic situation.
In services, managers’ slightly more optimistic views on past demand and virtually unchanged assessments of the past business situation and their demand expectations helped to boost the sentiment index slightly to 9.5 from 9.2.
“The problem remains somewhat isolated to manufacturing for now, although the service sector will ultimately feel the repercussions if this lasts much longer,” ING economist Bert Colijn said.
The latest purchasing managers’ survey showed at the start of this week that the euro area private sector moved close to stagnation in September as demand for both goods and services declined the most in over six years, signaling just 0.1 percent GDP growth for the third quarter.
In the construction sector, the sentiment was largely unchanged with the index easing slightly to 3.8 from 3.9 as managers were more negative about order books and plan to hire only at the current rate.
The financial services confidence, which is outside the headline economic sentiment index, rose sharply to 11.6 from 5.3, driven by the strong increase in all its three components, which are managers’ assessment of the past business situation and past and expected demand.
While employment plans eroded sharply in industry and slightly in retail trade, they improved somewhat in services and was largely stable in construction. Consumers’ unemployment expected grew further.
Selling price expectations grew in retail trade and construction, while they weakened in industry and services. Inflation expectations eased.
“Overall, with global growth likely to remain weak and domestic demand losing pace, economic sentiment in the euro-zone is likely to deteriorate further, weighing on activity,” Capital Economics economist Jessica Hinds said. “This strengthens the case for further policy support next year.”
Earlier this month, the European Central Bank unveiled a stimulus package with several measures including a reduction in the deposit rate to -0.50 percent and a restart of asset purchases.
A rebound in the euro area economy is unlikely in the near future, the outgoing ECB President Mario Draghi said on Monday.
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