Eurozone economic sentiment eases back led by France and Netherlands

The European Commission's economic sentiment index eased in August from an all-time high in July.

Eurozone economic sentiment has eased more than expected in August from a record high in July, hit by a sharp drop in optimism in France and the Netherlands, while selling price expectations in industry peaked, signalling inflationary pressure.

The European Commission's economic sentiment index eased in August from an all-time high in July. 

Optimism deteriorated in all major sectors — in industry, in services, and among consumers. 

Still, selling price expectations in industry, heralding likely future inflationary pressures, hit a record in August.

Also among consumers, inflation expectations rose in August, though they were still well below the all-time high from 2001.

German inflation already outpaced wage growth in the second quarter, new data showed, as rising price pressures caused by an economic recovery and supply bottlenecks in manufacturing reduced the spending power of consumers.

Still, hiring plans in construction, retail trade, and services drove employment expectations up in the eurozone, its highest level since November 2018, signalling more spending power and consumer demand ahead.

Overall, France recorded the sharpest drop in economic sentiment, followed by the Netherlands.

Italy and Spain were also weaker; sentiment in the biggest euro zone economy, Germany, eased only slightly. 

Meanwhile, Spain’s economic growth forecast for the year will be cut slightly due to worsening conditions in the first part of the year, Bank of Spain Governor Pablo Hernandez de Cos told El Mundo newspaper. 

But Denmark will raise its 2021 economic growth forecast to 3.8% from 2.4% seen in May as the Nordic nation recovers faster than expected from the pandemic. 

The Danish government will lower its 2022 GDP estimate to 2.8% from 3.6% to reflect the improved outlook in the 2021 base year. 

• Reuters, Bloomberg