Eurozone: Consumer confidence remains very strong – Capital Economics

Despite dropping for the first time in seven months in February, euro-zone consumer confidence continues to point to a pick-up in household spending growth, according to Stephen Brown, European Economist at Capital Economics.

Key Quotes

“The decrease from January’s +1.4 to +0.1 left the index below the consensus forecast of +1.0 but well above its long-run average of -12.0. While fuel prices are on course to fall this month and business surveys remain consistent with further improvements in the labour market, consumer sentiment was probably hit by the sharp declines in global equity prices at the start of February.”

“On past form, the euro-zone consumer confidence index remains consistent with annual household spending growth rising from our estimate of 1.6% in Q4 to as high as 3%. As the index has overstated growth in recent quarters, we doubt that spending growth will be quite that strong. Nevertheless, prospects are bright. For a start, temporary factors appear to have weighed on household spending in Q4 and these should reverse in Q1.”

“Looking further ahead, employment should continue to rise. And the pay deal that IG Metall secured earlier this month in Germany suggests that lower unemployment is finally putting upward pressure on wage growth, at least in some countries. In all, continued healthy spending growth is one reason why we expect the euro-zone’s economic recovery to continue apace this year, with GDP growth of 2.5%.”