Eurozone confidence falls as debt worries start to spread

LINGERING hopes that the EU sovereign debt crisis had not yet begun to affect the real economy were blown out of the water yesterday, as the eurozone economic sentiment monitor recorded an abrupt fall in May.

Economic sentiment in the 16-country Eurozone area fell to 98.4 in May, down from 100.6 in April and below the slight improvement expected by analysts.

“This is clear evidence that the deepening and spreading eurozone debt crisis, and the associated accelerated actual or planned fiscal tightening in a number of eurozone countries, is now weighing down on sentiment,” said Howard Archer, chief UK and European economist at IHS Global Insight. “There is therefore a very real danger that eurozone consumers will retrench over the coming months, thereby holding back economic growth.”

All Eurozone business sectors saw sentiment weaken in May apart from industry, which held up due to strong demand for EU exports. Sentiment fell from 6 to 3 in the services sector and from –1 to –5 in retail, while consumer confidence lost three points to –18, a seven-month low.

Eurozone consumers are also battling a crippling 10 per cent unemployment rate, muted wage growth and recently-hiked energy prices.