Euro zone follows downward trend

Economic sentiment in the euro zone deteriorated slightly in July, while a separate indicator of business climate unexpectedly rose, reports from the European Commission showed yesterday.

At a time when financial market turmoil is denting confidence around the world, the 12-member euro zone could not escape and the Commission's overall economic sentiment fell to 99.4, levels last seen in April, from 99.6 in June.

Still, that was less than the decline expected by economists whose consensus forecast had been for a drop to 99.2.

While consumer confidence fell to minus 10 from minus nine in June, in line with economists' expectations, the industrial confidence component remained unchanged at minus 10, instead of falling to minus 11.5 as they had expected.

A separate report also suggested resilience among euro-zone companies as the Commission's business climate indicator unexpectedly rose to minus 0.35 in July from a revised minus 0.45 in June. The June figure had previously been reported as minus 0.43.

Still, economists were wary of basing too much optimism on these figures, particularly given the battery of weak economic reports released recently from the United States.

"It is slightly better than expected but all the risks are still to the downside," said Mr Michael Klawitter, a strategist at West LB in London.

The Commission's overall economic sentiment index was also depressed as construction confidence declined to minus 14 from minus 11, largely due to falls in order books.

Taken together with the decline in consumer sentiment, this outweighed an increase in the retail trade confidence index to minus 15 in July from minus 16 in June.

The breakdown showed that consumers were becoming more downbeat about the general economic situations and the outlook for jobs.

"Overall, consumer expectations regarding their financial situation and savings over the next 12 months remained stable, while the expected developments of the general economic situation and unemployment worsened in both the EU and the euro area," the Commission said.

One bright spot was that most European consumers expected an easing of inflation pressures.

Such expectations will be reinforced by euro-zone producer price data released separately by the European Union statistics office, which showed few signs of pipeline pressures. Euro-zone producer prices for June fell 0.1 per cent from May and declined 1.1 per cent from a year earlier, Eurostat said. - (Reuters)