Eurozone sentiment falls ahead of ECB meeting

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Eurozone economic confidence tumbled in August after eight successive rises, according to a closely-watched survey that provided further evidence that growth in the 12-country region is peaking.

The “economic sentiment” indicator index published by the European Commission fell from 107.8 in July to 106.7 in August. The Commission warned that a full set of data had not been available over the summer and that the indicator “continues to perform well above its long term average”. But the decline, led by falls in industrial confidence, added to fears that the growth will slow in coming quarters.

The data came as the European Central Bank held an interest rate setting meeting in Frankfurt. The central bank’s main interest rate remained unchanged at 3 per cent but Jean-Claude Trichet, ECB president, was expected to signal at the subsequent press conference that a rise was likely in October.

“Growth probably peaked around the middle of this year. The third quarter will probably be quite strong. The question is what sort of slowdown we see beyond that,” said Robert Barrie, economist at Credit Suisse.

The ECB is likely to take comfort from a drop in eurozone inflation to 2.3 per cent in August, from 2.4 per cent in July, reported by Eurostat, the European Union’s statistical unit.

But inflation remains above its target of an annual rate “below but close” to 2 per cent.

The weak points in the eurozone’s economic recovery – which saw growth in the second quarter overtaking that in the US – were highlighted by German retail sales figures showing a drop of 1.5 per cent in July.

Although July’s exceptionally hot weather had deterred shoppers and August is likely to have seen a rebound, consumer spending remains the Achilles’ heel of Europe’s largest economy. German labour market figures were also weaker than forecast. Seasonally-adjusted unemployment rose unexpectedly by 5,000 in August.

France reported brighter jobs data, however. Its unemployment rate dropped to 8.9 per cent in July. That was the first time it has fallen below 9 per cent for four years.

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