May's decline in the EC measure of consumer confidence is another sign that the euro-zone economy has struggled to gather pace after Q1's slight pick-up in growth. Admittedly, the small fall in the index, from -4.6 in April to -5.5 in May, left it above the first quarter average of -6.3. And on the basis of past form, consumer confidence is consistent with household spending growth picking up from 1.4% y/y in Q4 last year, the latest quarter for which data are available, to around 2.0% y/y.
But this would not be a substantial pick-up in growth, particularly when other sectors of the economy appear to be faring less well. The flash composite PMI, released this morning, and ZEW euro-zone index both indicated a deterioration in business activity in May. So it would not be surprising to see May's EC business sentiment indices, which will be released next week, decline too.
"Looking ahead, we think that household spending will remain a key driver of growth in the euro-zone this year. But we suspect that consumer confidence is unlikely to begin rising strongly again. The index measures consumers' optimism about their own financial and employment prospects, as well as the wider economic outlook, over the next twelve months. Low inflation should provide some support to households' real incomes, but income growth is likely to remain slow given the high level of unemployment." says Capital Economics
