Economic sentiment falls in Europe
On the 29th of February it was confirmed that the economic sentiment in the Euro zone has deteriorated a lot more than what was forecasted for the month of February. But inflation has remained at the forecasted level itself although many economic data suggests that energy and food costs triggered a record shoot up in the month of January.
The monthly economic survey conducted by the European Commission on the monthly economic sentiment showed that the sentiment had fallen by 1.6 to reach 100.1 in the month of February from 101.7 in the month of January. This fall was a lot bigger drop than what the economists were expecting. The leading analysts that had forecasted for the month of February predicted the sentiment to drop to 101.2 and not less than that.
The reason behind the massive drop in sentiment is because of the ever decreasing optimism that exists in the Euro zone’s service segment. This sector accounts for generating more than 65 percent of the 15-member region’s gross domestic product.
When the consumer optimism remained at the same state, the construction and industry sentiment took a fall. The fact that the economy is not doing well is reflected from the fact that the only sector which showed an improvement in the sentiment was the retail sector.
The survey conducted by the European Commission however showed that the people’s expectation of inflation had remained unchanged. This is a closely watched indicator by the European Central Bank. This is the fourth month for which the expectations of inflation have remained unchanged. In the last 4 months the expectation has remained at a steady 28 points. Even though the expectation has remained stable, it is still more than the long term average, which is 23 points.
The expected selling price among businesses also remained unchanged at 14 points according to the Commission’s survey. The European Central Bank recently said that cementing inflation expectations was very essential to control the growth in price after it had taken off in the closing months of the previous year. The ECB in its recent announcement had said that it wanted the inflation to be not more than 2 percent.
On the 29th of February the European Union’s information office said that the prices in the Euro zone had fallen by 0.4 percent in the month of January as compared to the month of December. The year-on-year rise was by 3.2 percent. This was a confirmation of the previous annual predictions and other market expectations.
This annual gain was essentially due to energy prices which just shot up in the year. It had gone up by an incredible 10.6 percent. This rise was as expected by the economists.
Measuring the nucleus inflation helps the European Central Bank to determine how much the increase in the volatile apparatus influences the prices of other items in other sectors. Another thing the ECB has been trying to achieve was to get the wages to develop more than productivity. But since the unemployment in the euro zone is at a record low this is something that does not seem to happen anytime in the future.
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