Eurozone business confidence falls but Brexit effect seems to have worn off

Jasper Jolly
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Is this the calm before the storm for European business? (Source: Getty)

Business confidence in the Eurozone fell in November, surprising analysts after a widely followed measure posted healthy gains in the previous two months.

However, the indicator represents a relatively stable outlook after Brexit lows and ahead of a year of major political events in Europe.

The business climate indicator, which reflects the results of a survey carried out by the European Commission (EC), dropped to 0.42 – a drop of 0.14 since October’s survey.

Despite the fall, businesses are still significantly more confident than the lows recorded after the UK’s vote to leave the European Union in August when the indicator reached 0.03, its lowest since October 2013.

This broadly reflects the results of the EC’s associated survey of economic sentiment, which showed that the Eurozone has broadly gained in confidence since a low point in August when confusion about the consequences of the Brexit vote hit its highest point.

Read more: France and Germany take Eurozone confidence to eight-month high

“This suggests that any hit to Eurozone consumers and businesses' confidence from the UK’s Brexit vote in June was limited and fleeting,” said Howard Archer, chief economist at IHS Markit.

Eurozone confidence fell in November but is still well above August's post-Brexit lows

Confidence from financial services companies across the European Union increased markedly, jumping by 6.8 points.

However, headwinds remain for the Eurozone’s economy, with a steady stream of political events which could prove damaging to businesses and markets.

The most pressing issue is the Italian referendum on constitutional reform, which will take place on Sunday. Italian economic sentiment has decreased by 0.8 per cent in the last month, as polls are showing that Prime Minister Matteo Renzi is set to lose. He has said that he will resign if the result goes against him.

Eurozone business confidence has been net positive for three years, when it finally recovered from the depths of the global financial crisis and the subsequent Eurozone crisis.

It hit depths of a net negative rating of 3.98 in March 2009 as the effects of the crisis became clear.

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