According to ING’s Chief Economist Bert Colijn, Eurozone economic sentiment weakened in March 2024, primarily due to the impact of the Middle East war on consumer and business confidence [1]. The economic sentiment indicator declined from 98.3 in February to 96.6 in March, marking a notable drop as inflation concerns intensified [1]. The war has led to increased worries about a potential new energy crisis, overshadowing previous optimism driven by stronger public investment and consumer spending [1].
Selling price expectations in the industrial sector surged from 12.3 to 19.7, reaching their highest level since February 2023, as input prices rose due to higher energy costs and supply chain disruptions [1]. In contrast, the service sector experienced a much smaller increase in selling price expectations, reflecting its lower dependence on energy inputs [1]. The decline in sentiment was most pronounced among consumers and retailers, while broader service sector and industry sentiment remained stable, and recent production levels for both sectors have not yet been affected [1].
Despite the sharp rise in inflation expectations and weakened sentiment, current output for businesses has remained broadly stable, according to the survey [1]. However, forward expectations have deteriorated, with businesses already factoring in higher selling prices and weaker demand [1]. ING notes that a swift resolution to the conflict could limit the economic fallout, but concerns about prolonged effects are beginning to weigh on the European mood [1].
CONCLUSION
The Middle East war has triggered a significant drop in Eurozone economic sentiment and heightened inflation fears, particularly among consumers and retailers. While current business output remains stable, rising price expectations and deteriorating forward outlooks suggest increasing market caution. The extent of economic impact will depend on the duration of the conflict, with longer-lasting effects likely to further dampen sentiment.