Euro-Area economic confidence declined on eve of Brexit vote

German Chancellor Angela Merkel has said the EU remains one of the biggest economic global powers and is "strong enough" to withstand the UK's exit.
German Chancellor Angela Merkel has said the EU remains one of the biggest economic global powers and is "strong enough" to withstand the UK's exit.PHOTO: AFP

LONDON (BLOOMBERG) - Euro-area economic confidence weakened in June in anticipation of a UK referendum that unexpectedly saw Britons choosing to leave the European Union.

An index of executive and consumer sentiment fell to 104.4 from a revised 104.6 in May, the European Commission in Brussels said on Wednesday. Data were collected before the British vote on June 23. Economists surveyed by Bloomberg predicted the gauge would remain unchanged.

The UK's shock decision to quit its membership in the 28-nation bloc triggered a market rout similar to the one observed during the 2008-2009 financial crisis and raised concerns that an already fragile euro-area recovery could be derailed. European Central Bank President Mario Draghi told European leaders on Tuesday that he leans toward more pessimistic forecasts of how much growth in the 19-nation region will suffer in the wake of Britain's vote to leave.

According to Eurostat, sentiment in services, retailing and construction deteriorated in June, with consumers also turning more negative. Confidence improved in the industrial sector and financial services.

German Chancellor Angela Merkel has said the EU remains one of the biggest economic global powers and is "strong enough" to withstand the UK's exit.

Economists have started to cut their growth forecasts for the euro area nonetheless, with Capital Economics warning this week that while the vote will have only a "small direct" impact on trade, "the indirect effects on confidence and financial markets may be more serious."

Mr Draghi said at an EU summit in Brussels that economic growth in the euro region could be as much as 0.5 percentage point weaker than previously estimated over the course of the next three years.

That could once again cloud the outlook for inflation. Earlier this month, he expressed confidence that consumer-price growth would return to the ECB's goal of just under 2 per cent in the "not-too-distant" future, after more than three years of falling short.

Euro-area consumer prices were unchanged from a year ago in June, Eurostat will say on Thursday, according to the median estimate in a separate Bloomberg survey. The ECB forecasts inflation will average 0.2 per cent this year before accelerating to 1.3 per cent in 2017 and 1.6 per cent in 2018. It sees growth at 1.6 per cent in 2016 and 1.7 per cent in each of the following two years.