The Strategist

Italians Have More Confidence in Eurozone Economy than Germans

10/30/2015 - 12:32

Last batch of statistics on Eurozone’s consumer confidence proved to be very diverse and presented a lot of surprises.

Alone / Together vis flickr
Alone / Together vis flickr
The composite index of business and consumer confidence in the Eurozone in October was at the level of 105.9 points against 105.6 points a month earlier, according to the European Commission. The October value of the indicator was the highest since June 2011, as in the previous two months.

On the one hand, we see that French consumers feel unhappy, and Germans’ fall in consumer confidence has been continuing for the seventh consecutive month. Yet, bursts of optimism periodically arise in other regions.

Italy stands out. Italians have not experienced such euphoria already since 2002. Moreover, for the first time since 2009, consumer confidence in Italy and Spain happened to be higher than in Germany.

All this, of course, wonderful, but there is question: if everything is so good, why Head of the ECB Mario Draghi continues to increase the already massive incentives. Recall, last week, Mr. Draghi literally promised to undertake some new market stimulating measures by the end of the year. The promise resulted in a negative yield on bonds of European countries showed new highs, that is, plunged into negative territory for the maximum amount.

Apparently, the problem is that pace of Eurozone’s recovery as a whole remain unsatisfactory, given the strong support, says the British magazine The Economist.

One form of support was a sharp drop in oil prices, which had the same effect for consumers and businesses as tax reductions. However, the fall in oil prices has at once caused a decrease in inflation, with what, in fact, is struggling the European Central Bank.

It is a vicious circle. Although, if consumers eventually go to stores, we will finally see the growth of inflation in Europe.

Exports doesn’t help much either. Against the backdrop of developing countries’ slowing, exports in there will surely slow down, despite the weaker currency. These markets account for 25% of euro area exports, and about 30% of Germany, France, Italy and Spain.

A similar situation is being observed with China. Until recently, exports to China (almost 7% of total exports) has been one of the sources of success in Germany. Today, it becomes a source of threat for the German business. Negative trends are already visible today. German exports fell sharply in August compared with July, meanwhile reducing number of new factory orders. In general, Eurozone industrial production fell in August by 0.5% compared with the previous month.