Euro Area: Economic sentiment falls amid the war in Ukraine in March

Euro Area Economic Sentiment March 2022

Euro Area: Economic sentiment falls amid the war in Ukraine in March

Sentiment in the Eurozone fell to 108.5 in March from 114.0 in February. The index nonetheless remained above its long-run average of 100. Sentiment in the construction, industry and retail sectors declined, weighed down by Russia’s invasion of Ukraine. Moreover, employment expectations weakened, while consumer sentiment plunged in the month. Meanwhile, selling price expectations soared to their highest levels across all sectors. On the flipside, sentiment in the services sector improved for the second consecutive month.

In terms of specific countries, sentiment decreased in France, Germany, Italy and Spain, while it rose in the Netherlands.

Bert Colijn, senior economist at ING, linked March’s result to the pains of inflation:

“The most important takeaway from the survey is that selling price expectations for both services and industry are soaring at the moment. The higher input costs due to jumps in energy prices and further supply chain problems translate into higher core inflation in the short term.”

Furthermore, Colijn expected these dynamics to continue:

“This brings further upside to our eurozone inflation expectations which were already above 7% for March. In the coming months, expect purchasing power to be squeezed substantially, together with production hiccups thanks to renewed supply chain problems. We expect that combination to cause GDP growth to turn negative in Q2, followed by recovery. So while economic activity may have been supported by services activity in Q1, things are looking worse for the months ahead.”

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