Euro zone economic sentiment dropped sharply in June, led by weaker confidence in all sectors except services while inflation expectations among consumers and companies jumped, data showed today.
The European Commission's economic sentiment indicator fell to 94.9 points from May's 97.6, which some economists said signalled a slowdown in annual economic growth to 1.3 percent in the second quarter from 2.2 per cent in the first.
Sentiment in industry declined 3 points to -5, among consumers by 2 points to -17, in the retail sector by 3 points to -4 and in construction by 2 points to -11.
"The fall in June is very large. I think we have to face up to the reality that the euro zone economy has hit a wall and we should brace ourselves for worse news on growth in coming quarters," said Ken Wattret, economist at BNP Paribas.
Confidence rose 1 point to 9 points in the services sector, which generates more than two thirds of the 15-country euro zone's gross domestic product.
The monthly Commission survey showed, however, that after months of relative stability, industry selling price expectations jumped to 16 points from 13 points in May.
Consumer inflation expectations for the next 12 months jumped to 31 points from 28 in what is likely to worry the European Central Bank and add to arguments for an interest rate rise at its next meeting on July 3.
The ECB said in early June it may raise interest rates by a small amount next week from the current 4 percent to better anchor inflation expectations at a time of surging oil and food prices, which boosted inflation to a record 3.7 percent in May.
The ECB wants inflation to be just below 2 per cent. Economists expect inflation may still rise higher before it starts to ease back towards the ECB's target in late 2009.