Europeans have lost confidence in their economy. Polls and indicators of economic optimism show that citizens of eurozone countries are feeling nearly as gloomy about their economic prospects as they did in darker recession days. The Wall Street Journal reports:
The decline in confidence also indicates that new stimulus measures announced by the European Central Bank in early September have so far failed to convince households and business leaders that the economic outlook will improve.Indeed, businesses reported they expect their selling prices to be weaker than they did before the measures were announced, while consumers also lowered their expectations for inflation.The ECB’s measures are intended to end a period of very low inflation. But figures released by Spain, Belgium and Germany Monday suggested the annual rate of inflation in the eurozone may have fallen to a fresh five-year low in September.The European Commission Monday said its Economic Sentiment Indicator—a measure of consumer and business confidence—fell to 99.9 in September from 100.6 in August. Economists had expected a decline to 100.0.That brought the ESI below its long-term average, going back to 1990, for the first time since November 2013.
The stark decline in European confidence can probably be attributed to two things: First, economic growth in the last quarter unexpectedly ground to a virtual halt, and now we are seeing the indicators of market reaction to that. Second, the crisis in Ukraine threatens to harm Europe more than many people understand. The Baltic states, especially Latvia, are growing increasingly worried that Putin will continue to test the West’s limits by pushing past NATO boundaries. Plus, the conflict has potentially interrupted most of the flow of Russian gas into Europe, and it has already wrought potentially contagious economic havoc inside Ukraine itself.Europe’s economic crisis is deepening. None of the reasons for the doomsaying show any real signs of improvement, and weak confidence can be a self-fulfilling prophecy. It look as though the Eeyores might be right.