Confidence in Eurozone economy takes a dive as investors await European Central Bank (ECB) stimulus signals

Jasper Jolly
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The German auto industry has been a big drag on confidence (Source: Getty)

The euro fell today after a closely watched survey of analysts showed growing “nervousness” over European growth, as investors await more details from the European Central Bank (ECB) on the future of its stimulus programme.

The Zew indicator of economic expectations for the Eurozone, which measures analyst confidence in the prospects for the economy, fell to a balance of 29.3 per cent in August, well below predictions.

The Eurozone economy has seen a strong pick-up in growth in the last year, but confidence was weighed down by a steep fall in confidence in the German economy, which saw the index reading fall from 17.5 to 10.

The overall European economic outlook remains relatively strong, but has been affected by the scandal over emissions from diesel cars in Germany’s enormous automotive sector, according to Achim Wambach, president of the German economics research centre.

“The significant decrease of the Zew economic sentiment indicator reflects the high degree of nervousness over the future path of growth in Germany,” he said.

The fall in confidence dragged on the euro, which has seen its value boom over the past year as growth in the Eurozone economy has accelerated. It fell by as much as 0.5 per cent over the course of the day to reach lows of below $1.175 at the time of writing.

The surprise fall in confidence comes as investors watch closely for signs on the future path of monetary policy from the ECB.

The stimulus programme of bond-buying, also known as quantitative easing (QE), which the ECB partly credits for supporting European growth is due to run out in December, with a decision on the future path and scale of stimulus due in the coming months.

ECB president Mario Draghi will speak on Friday at the Jackson Hole central bankers’ forum on “fostering a dynamic global economy”. Today the central bank’s vice-president, Vitor Constancio, defended the stimulus programme, saying that it had not caused an increase in inequality, a common criticism.

QE has lifted asset prices, boosting the wealth of asset owners. However, Constancio argued that effect was outweighed by the support to employment given by stimulus measures, which tends to benefit people on lower incomes.

In a speech delivered today in Lisbon, Constancio said: “From the distributional perspective, the main impact of expansionary monetary policies is on the reduction of unemployment with positive effects on the reduction of inequality.”

Read more: Eurozone inflation "not quite there yet" for tightening says ECB official

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