Eurozone Economic Sentiment

Concern about Eurozone core inflation is increasing as we see large increases in selling price expectations. This will have an impact on the economy and  the war in Ukraine will only make the situation worse in the coming months. However, the impact of this may be offset to some degree by the reopening of service businesses as Covid restrictions are lifted.​

Economic sentiment fell by 5.4 points to 108.5 in March. The largest drop in confidence was among consumers, but manufacturing businesses also saw industrial confidence decrease.  Order books look healthy, but supply chain problems are already causing production shutdowns which will cause problems and headaches in the months ahead.

The service sector is set to offset some of the negative impact of manufacturing production issues in March. The reopening of economies has boosted recent demand for service sector businesses and even though we are seeing higher prices, demand expectations continue to improve for the months ahead. However, this might not last long as inflation trends higher and starts to really bite.

If there is one thing that really stands out from this report is that selling price expectations for both services and industry are souring. The higher input costs due to significant increases in energy prices and further supply chain problems translate into higher core inflation in the short term. 
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The result of this melting pot of factors is a high probabilty for a squeeze on purchasing power in conjunction with supply chain issues that will cause production problems. This is highly likely to have a negative effect on GDP growth in Q2 and it really doesn't paint a good picture for the economy over the coming months.