In the wake of the upward correction in business indices (PMIs) since the end of last year, the euro area consumer confidence index has gone in the same direction in January, edging up 7 tenths from -21.3 (downwardly revised from -21.1) to -20.6. For the first time in six months, consumer confidence has not worsened.

It is likely to benefit from a better inflation outlook and the sentiment that the worst of the euro area sovereign crisis may be behind us. However, there is no reason to be over-optimistic about it as it very much corresponds to a first stabilisation print.

Furthermore, the picture painted for the consumer outlook is still grim as the index is still below -20 which broadly corresponds to a negative yearly momentum in private consumption and as the unemployment rate is likely to continue adjusting on the upside until the end of the year. We forecast the unemployment rate to increase to 10.6% in Q1 12 from 10.1% in Q3 11, possibly reaching 11.1% on average in Q4 12.

The components of the headline index will be published within the overall European Commission survey next Monday.


source: BarCap