WSJ: Greek Crisis Weakens Eurozone Consumer Confidence

Eurozone consumers became increasingly troubled by the threat of a Greek exit from the currency area, a development that could weaken spending and the modest economic recovery.

   The European Commission said on Thursday that the headline sentiment measure from its monthly survey of consumers fell to minus 7.1 from minus 5.6 in June. Despite the negative reading, the measure remains above the levels observed in the years since the financial crisis.

   The survey was carried out as Greece edged as close to departure from the currency area as any member has ever reached, before an agreement was secured on July 13 that could pave the way for fresh loans from the rest of the eurozone to the country over a three-year period. Earlier on Thursday, Greek lawmakers approved tough new austerity measures, a vote that marked the final hurdle before the sides could start negotiations to complete a desperately needed bailout deal.

   During previous episodes of high uncertainty over the fate of the eurozone, consumer confidence has weakened significantly, most notably in mid-2012, when the threat of a breakup of the currency area seemed at its most severe.

   But the response to that same threat had until July been much less dramatic, mirroring the lack of turmoil in financial markets, where yields on bonds issued by other eurozone governments remained relatively unchanged even as those of Greece soared.

   Greece accounts for around 2% of the eurozone’s total economic output, and its troubles will have little direct effect on the currency area’s growth rate. In contrast with the early years of the debt crisis that began in 2010, the exposure of eurozone lenders to the country is minimal, while bond investors likewise have little at stake. But a Greek exit would raise doubts about the durability of the eurozone, and create a whole new set of uncertainties for a population that is weary of austerity, high unemployment rates and the failure of policy makers to bring the debt crisis to an end.

   The July blow to consumer confidence may prove short-lived if negotiations on a new bailout progress smoothly. But any lasting impact on sentiment could prove costly to the eurozone’s slow recovery.

   Rising consumer spending toward the end of last year helped drive a modest pickup in eurozone economic growth. The weaker euro hasn’t proved a game changer for eurozone exporters, and trade was a drag on the economy in the first quarter. If household spending were to weaken, that would leave the recovery reliant on an increase in government spending and business investment.

   “Any adverse impact on eurozone consumer confidence coming from what has happened in Greece is obviously disappointing and is of concern given that the consumer has been playing the leading role in recently improved Eurozone growth,” said Howard Archer, an economist at IHS. “It remains to be seen whether July’s marked dip in confidence significantly affects consumer spending and whether confidence will bounce back given the deal that has been reached for Greece.”

Πηγή: wsj.com