Eurozone economic mood slips: French political crisis adds to worries
Economic sentiment in the eurozone slipped again in August, underlining the fragility of the region’s recovery amid stubborn inflation expectations and mixed signals from the labour market.
The Economic Sentiment Indicator (ESI), published Thursday by the European Commission, declined by 0.5 points to 95.2 in the euro area and by 0.3 points to 94.9 in the broader European Union. Both readings remain well below the long-term average of 100, indicating that confidence across households and businesses remains subdued.
The decline in sentiment was driven by marginal downticks in industry, services, construction and consumer confidence. Only retail trade posted a slight improvement.
Among major economies, Spain recorded the steepest drop, down by 2.6 points, while Germany and Italy saw sentiment fall by one point each. The Netherlands posted a significant improvement, up 3.5 points, and France’s sentiment was broadly unchanged.
Importantly, the European Commission’s survey does not yet capture the recent escalation of France’s political crisis, which unfolded after the data collection period.
The survey found that consumer price expectations for the upcoming year continued to rise, even as perceptions of recent price increases began to ease.
In the business sector, selling price expectations fell in industry and retail, and remained stable in construction. However, the services sector saw a second consecutive monthly increase.
The Economic Uncertainty Indicator dropped slightly, down by 0.4 to 16.9, with managers in services, retail and industry feeling marginally more confident about future business conditions. However, construction firms and consumers reported increased uncertainty, particularly regarding household finances.
Some positive signals came from the labour market. The Employment Expectations Indicator increased moderately, up by 0.3 points in the eurozone to 97.8, supported by more optimistic hiring plans in industry, retail and construction. Services remained flat.
Related
A high-stakes political gamble in France could soon send shockwaves across eurozone markets, as Prime Minister François Bayrou brings forward a no-confidence vote to 8 September, prompting warnings from economists over rising fiscal and political risks.
In a note shared this week, Sonia Renoult, fixed income strategist at ABN Amro, called the move “un coup de poker”—a gamble—explaining that Bayrou is seeking to frame the showdown as a choice between fiscal stability and political obstruction.
