Euro zone sentiment improves, overcoming Ukraine crisis concern

Wed Jul 30, 2014 6:27am EDT
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By Martin Santa

BRUSSELS (Reuters) - Euro zone economic sentiment unexpectedly improved in July despite the deepening crisis between the West and Russia over Ukraine, data showed on Wednesday, and inflation expectations among consumers and companies edged up.

Consumer morale rose in three of the euro zone's five biggest economies, led by Italy and followed by France and the Netherlands, while the bloc's growth engine Germany and Spain saw sentiment worsening.

The monthly economic sentiment index for the 18 countries sharing the euro rose to 102.2 in July from a revised 102.1 in June. Economists surveyed by Reuters had forecast a drop to 101.8 in July.

Europe, following months of hesitations, agreed on Tuesday to broad economic sanctions on Russia - its third-biggest trading partner - targeting Moscow's energy, banking and defence sectors over Moscow's support for rebels in eastern Ukraine.

"It is highly likely that events in the Ukraine and heightened global geopolitical tensions are taking an increasing toll on confidence in some countries. This is clearly the case, for example, with business confidence in Germany," said Howard Archer, chief European economist at IHS.

"Furthermore, the introduction of increased sanctions against Russia could further impact on sentiment," he added.

While industry confidence rose on optimism about future production, confidence in the services sector declined as demand expectations weakened. Worries about jobs and the economic outlook meanwhile hit consumer confidence, the Commission said.

Consumers' inflation expectations improved marginally to 8.7 in July from 8.6 in June while companies' outlook for selling prices returned to positive territory in July for the first time in seven months.   Continued...

A woman walks past a shop window in downtown Rome August 2, 2011. REUTERS/Tony Gentile