Eurozone consumer confidence rises to minus 17.7 as energy costs ease

Eurozone households grew slightly less pessimistic in June as easing energy prices and cooling Middle East tensions supported a tentative recovery in sentiment.

Eurozone consumer confidence improved for a second month in June, though the reading of minus 17.7 remained well below its long-term average as the European Central Bank raised borrowing costs for the first time in nearly three years.

"Consumer confidence improved again in June but the mood among households is still very gloomy," said Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics.

The European Commission's flash indicator rose from minus 19 in May, missing the consensus forecast of minus 17.4 from economists polled by The Wall Street Journal. The survey, conducted June 1-19, overlapped with the announcement of a halt in military action between the US and Iran, contributing to a cooling of geopolitical tensions that had pushed sentiment to a three-year low in April.

Consumer spending growth is likely to remain weak in the second quarter before staging a gradual recovery in the third quarter as real household incomes begin to recover, Allen-Reynolds said. The ECB's rate increase earlier this month — the first in almost three years — adds headwinds for households already grappling with elevated borrowing costs.

The improvement in sentiment reflects a broader easing of financial pressures on European households. Energy prices have moderated in recent weeks after spiking earlier this year, while the de-escalation in Middle East hostilities removed a key source of uncertainty that had weighed on consumer confidence since April.

The indicator remains significantly below its long-term average, the commission said, a sign that the recovery remains fragile. The ECB's decision to raise rates this month, driven by inflation that jumped after the outbreak of the conflict in the Middle East, adds another layer of pressure on household budgets.

Consumer spending, a key driver of eurozone economic growth, is expected to remain subdued in the near term. The gradual improvement in real incomes projected for the third quarter will be critical in determining whether the recovery in sentiment translates into actual spending. Market reaction to the data was limited, with the euro and European government bonds showing little movement as the reading was broadly in line with expectations.

This article is for informational purposes only and does not constitute investment advice.