Euro-area economic confidence fell for the first time this year, led by weaker readings in the services and retail sectors.
The decline in the index of executive and consumer sentiment, while unexpected, still leaves the measure close to its highest level in a decade. It fell to 109.2 in May from a revised 109.7 in April, which compares with the median estimate in a Bloomberg survey for an increase to 110.
The report will feed into the European Central Bank’s discussion next week in Tallinn, where policy makers will assess the health of the 19-nation economy. President Mario Draghi has urged patience in outlining an exit strategy from negative rates and a 2.3 trillion-euro ($2.6 trillion) bond-buying program even as he told European lawmakers on Monday that the upswing is becoming increasingly solid and broad-based.
The decline in the confidence gauge marks the first modest stumble by the euro-area economy, which has shown continued signs of strength this year. IHS Markit, which publishes a monthly activity index, said last week that the economy is growing at a pace that would warrant tighter monetary policy if it wasn’t for weakening inflation.
Euro-area consumer-price growth probably slowed to 1.5 percent this month from 1.9 percent in April, economists predicted in a separate survey before a report on Wednesday. Spain’s inflation rate fell more than forecast in May, dropping to 2 percent from 2.6 percent, while data later on Tuesday is expected to show a drop in Germany.
According to the commission’s survey, consumers’ 12-month price expectations declined for a second month. That suggests that core inflation will “remain subdued” and the ECB is “unlikely to begin reining in its QE program any time soon,” said Stephen Brown, European economist at Capital Economics in London.
The commission report also said consumers’ confidence was “robust” in May and their outlook for the economy turned more positive. Industry sentiment was “broadly stable,” and the decline in services confidence was due to a worsening of the assessment of past demand and demand expectations.