MercoPress. South Atlantic News Agency

European confidence in economic outlook down and inflation up

Consumers are reluctant to go shopping

European confidence in the economic outlook unexpectedly worsened in May and inflation accelerated as the Euro region’s debt crisis shook markets.

Confidence among consumers fell to minus 18 in May from minus 15 in April, the European commission report showed. Sentiment in retailing, construction and services industries also declined. Manufacturing sentiment rose to minus 6 from minus 7.

The commission said that the latest confidence reading is influenced by a “change of classification of economic activities,” affecting the level of business surveys. The consumer index wasn’t affected by the new method, it said.

The Euro-region economy may expand 0.9% this year and 1.5% in 2011, the commission forecast on May 5. Inflation may average 1.5% this year and 1.7% in 2011, while unemployment is seen rising to 10.4% from 10.3% this year, it said.

To help contain the EU sovereign debt crisis, European policy makers earlier this month unveiled a 750 billion-Euro rescue package. Spain, Portugal and Italy have stepped up budget cuts as part of the plan. An index of economic confidence in Greece dropped to 61.9 in May from 69.1 the previous month, while a gauge for Portugal fell to 91.1 from 93.8. Sentiment in Spain also declined.

The Euro 14% drop against the US dollar this year has helped support the region’s export-led recovery as rising unemployment weighs on consumer demand and companies hold back investment. The Organization for Economic Cooperation and Development on May 26 raised its global growth forecast for this year, citing a faster expansion in economies including China.

Twelve-month inflation rose to 1.6% in May across the 16 countries which share the Euro currency, up from 1.5% in April, according to the EU Eurostat data agency. This is the highest inflation recorded in the Euro area since December 2008.

Euro zone inflation has risen, almost continuously, from 0.5% last November as the bloc emerges from the worst recession since the 1930s. However the latest increase moves the figures closer to the European Central Bank's core economic target of inflation at close to but below 2%.