Economic confidence slumps in eurozone

The eurozone is facing a difficult road out of recession and has seen a souring of the mood among companies and consumers since March, after an optimistic start to the year was disrupted by turmoil in Cyprus and Italy.

Morale in the 17-country bloc slipped 1.5 percentage points to 88.6, the European Commission said yesterday worse than the decline to 89.3 expected by economists polled by Reuters.

“We are reaching a trough and the market is betting on the ECB cutting rates to lift the economy,” said Steen Jakobsen, chief economist at Saxo Bank. “But lower interests won’t solve the eurozone’s problems, we need structural reforms and for businesses to invest again.”

Pessimism set in even in Germany, which has performed better than most during the crisis, with economic sentiment there worsening by 2.3 points. Morale also fell in France and Italy, meaning the eurozone’s three largest economies are all witnessing a marked decline in the confidence that is crucial in getting the output in the eurozone growing again.

Confidence fell across the region from industry to retail trade, and sentiment in services fell 4.1 percentage points.

The commission’s measure of the eurozone’s business cycle decreased 0.18 points to -0.93, lower than the -0.89 level expected by economists. Many expect the ECB to cut interest rates to lower the cost of borrowing and help improve morale.