Euro zone consumer confidence falls surprisingly in August; bloc likely to expand marginally in 2017

Consumer confidence in the euro area posted an unexpected fall during the month of August, defying initial hopes that the common currency bloc has started to withstand the fallout from the UK’s Brexit vote. Further, the euro bloc is expected to expand only marginally in 2017, experts said.

Eurozone’s flash consumer confidence index dropped to -8.5 from -7.9 in July. Economists had forecasted a modest improvement to -7.7. The reading was the lowest since April's -9.3, data released by the European Commission showed Tuesday.

The consumer confidence index for the EU also declined for a third straight month, down by 0.1 points to -7.8. The final figures will be released along with the economic sentiment report on August 30.

Further, the decline was also steeper than the 0.1 point fall registered across the EU as a whole in August and mirrors similar survey results suggesting declining optimism among households and the private sector.

"It seems reasonable suspect that a further appreciable drop in Eurozone consumer confidence to a four-month low in August is influenced by concerns over the UK’s vote to leave the EU as well as by recent slower Eurozone growth," said Howard Archer, Chief European & UK Economist, IHS Markit.

According to Andrew Wishart of Capital Economics, this slowdown in consumer spending is set to drive eurozone growth lower next year. He further expects the bloc to expand just 1 percent in 2017 as rising energy prices crimp household spending.