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Things looking up in euro zone? Someone should tell the consumers
February 27, 2017 / 2:12 PM / 9 months ago

Things looking up in euro zone? Someone should tell the consumers

LONDON (Reuters) - Monday’s release of euro zone business and consumer sentiment roughly mirrored what was seen earlier this month in Germany: businesses are relatively bullish, consumers no so much.

As the following graphs - - show, business-conditions sentiment in the 19-member euro zone EUBUSC=ECI rose in February to its highest level since mid-2011.

The same could be said for Germany’s ZEW index of economic conditions DEZEWC=ECI. Despite dipping slightly month on month, it was just off highs not seen for nearly 6 years.

But consumers have another view. The euro zone final consumer confidence index EUCONS=ECI took a dive in February, as did the GfK German consumer confidence index DECONS=ECI looking ahead at March.

If this disconnect were to continue, it would quickly undermine what appears to have been a robust start to the euro zone economy’s year.

The cause is probably inflation and wages. Rabobank’s head of macro strategy, Elwin de Groot, says the business environment is bubbling along as the U.S. and Chinese economies grow.

But euro zone consumers are looking at rising inflation, which they are not used to, and stagnant wages. Consumer price inflation for the euro zone is expected to have hit 2 percent when its is reported on Thursday. [DATA/]

Perhaps even more dampening to sentiment, however, is wage growth.

In the fourth quarter of last year, the European Central Bank’s indicator of negotiated wage rates was at its lowest since the euro was created - and extrapolated back beyond that to 1991.

Editing by Louise Ireland

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