Eurozone Recession Looms on Record-low Consumer Confidence Reading

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The European Commission's measure of consumer sentiment has plunged to all-time lows, leading economists to warn the area is now entering recession.

The Commission's Business and consumer survey results for July 2022 showed a 3 points decrease to -27, an all-time low.

"The European Commission's economic sentiment indicator took a dive in July, with forward-looking indicators pointing to an economic contraction in the second half of the year," says Peter Vanden Houte, Chief Economist for the Eurozone at ING.

The plummeting in consumer confidence resulted from marked deteriorations in all four components of the measure.

Households’ assessment of their past financial situation and their outlook on their future financial situation hit all-time lows, their intentions to make major purchases and
expectations about the general economic situation fell to the lowest levels since April 2020.

"It seems clear that final demand is stalling," says Vanden Houte. "High inflation and the soaring costs of energy are, of course, major headwinds."

The data also revealed the labour market, which had been a big support for consumption, is also shows signs of weakening.

The Employment Expectations Indicator decreased markedly by 3.6 points to 106.6 in the EU and fell 3.2 points to 107.0 in the Eurozone.

A substantial decrease in industry confidence (-2.8) was also recorded, with the Commission saying it was the result of significant deteriorations in managers’ assessment of the current level of overall order books and their production expectations.

"While we still believe that the ECB will deliver an additional 50bp rate hike over the coming months, the spectre of a full-blown recession is likely to halt the tightening cycle before the end of this year," says Vanden Houte.

On Thursday European Central Bank (ECB) Governing Council member Ignazio Visco said the ECB may refrain from another robust interest rate increase in September.

"What we see in the real economy, certainly it is not terribly encouraging," said Visco.

In July the ECB raised interest rates by 50 basis points and signalled further hikes are coming.

For Euro exchange rates the size of the hike could matter, with a scaling back of hike expectations potentially weighing.

"Everything was dismal," said Visco of the incoming economic data since the hike.