Eurozone consumer confidence rises to minus 17.7, misses forecasts

Eurozone consumer sentiment improved for a second month in June but fell short of expectations, extending a fragile recovery from a three-year low.

Eurozone consumer confidence rose 1.3 points to minus 17.7 in June, the European Commission said Monday, extending a tentative recovery from a three-year low even as the reading missed economists' forecasts.

The Commission's monthly survey showed consumer morale across the 20-nation currency bloc improved from minus 19.0 in May, when the reading had already recovered from April's three-year low of minus 20.6. Economists polled by Reuters had expected a rise to minus 17.5. Across the broader European Union, consumer sentiment rose 1.2 points to minus 17.0.

The improvement was broad-based but the index remains well below its long-term average of roughly minus 10, reflecting persistent headwinds from elevated borrowing costs and inflation that, while moderating, remains above the ECB's 2 percent target. The European Commission's economic sentiment indicator, a broader measure that includes industry and services, is due later this week and is expected to show a similar pattern of gradual improvement.

The data gives the European Central Bank some breathing room as it assesses whether the economy can withstand higher-for-longer interest rates without tipping into recession. Consumer spending accounts for roughly half of eurozone GDP, making the trajectory of household sentiment a critical variable for second-half growth. The euro was little changed against the dollar following the release, trading near $1.08, while eurozone government bonds held steady as the data did little to alter rate expectations.

The eurozone economy has struggled to gain momentum this year, with the manufacturing sector in contraction and services activity showing signs of cooling. The composite PMI for June, due later this week, is expected to show the services sector expanding at a slower pace while factory output continues to shrink. The consumer confidence indicator, while improving, remains in deeply negative territory — a level historically associated with subdued spending and elevated saving rates.

The last time the index was at similar levels in mid-2023, the eurozone narrowly avoided a recession as consumers drew down pandemic-era savings to support spending. With those buffers largely depleted, the current recovery in sentiment may need to translate more quickly into actual consumption to sustain growth. The household saving rate in the eurozone stood at 15.3 percent in the first quarter, well above the pre-pandemic average of about 12.5 percent, suggesting consumers remain cautious despite the improvement in sentiment.

For the ECB, the data provides marginal support for a cautious approach to policy easing. The central bank held its deposit rate at 3.75 percent at its June meeting after cutting from a record high of 4 percent. Markets are pricing roughly two additional quarter-point cuts by year-end, though the timing remains uncertain. ECB President Christine Lagarde has emphasized that the central bank will be data-dependent, with wage growth and services inflation key to the pace of any further easing.

The next ECB meeting on July 24 will offer the clearest signal on whether policymakers see enough progress on inflation to begin loosening again. Until then, data releases such as the consumer confidence reading will be scrutinized for signs that the economic recovery is gaining traction — or stalling.

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