The impact of inflation on consumption hits investor confidence

Investors on the German Stock Exchange. / Reuters

The Sentix index, which measures the perception of financial analysts and institutional investors about activity in the euro zone, has been negative for six months, its worst streak since the outbreak of the pandemic

Clara Dawn

Energy crisis, rising prices of basic products in the shopping cart and increasingly expensive vacations. The sharp rise in prices since the outbreak of the war in Ukraine -which in Spain has translated into runaway inflation of 10.8% in July- is also beginning to make a dent in investor confidence regarding the recovery of the Euro zone.

This is reflected in the Sentix index published this Monday which, despite improving to -25.2 points in August compared to -26.4 the previous month, has been worse than the -24.7 points expected and has already accumulated six months in negative ground, just since March, coinciding with the start of the war in Ukraine.

This is its worst streak since 2020, when in the midst of the outbreak of the pandemic the indicator accumulated ten months in the negative (from March to December). And this poses a problem for the markets, since the index is closely followed when translated into the sentiment of financial analysts and institutional investors (insurance companies or large funds, among others) about economic activity in the region, both in the current situation and your expectations for a period of six months.

Sentix experts, who conducted the survey among more than 3,100 investors from 20 different countries, acknowledge the improvement in the indicator in August. But they warn that "this does not imply a new evaluation of the economic situation." Moreover, they consider that the perception of a "predictable recession" is maintained.

The indicator is made up of two sub-indices: that of the current situation, which remains negative at -16.3 points, and that of expectations (-33.8 points). And, according to the firm's experts, "both continue to paint a gloomy picture of the economic situation in the euro zone." "It is no surprise that neither weak consumer confidence, nor the inflation or energy price front, are providing lasting positive impulses," they add.

At this point, the survey details that consumer confidence is the most worrying among those consulted, ensuring that consumers "are increasingly aware of the financial burden of high energy prices." And they refer not only to families, but also to companies that, in the end, end up transferring this increase in costs to their products.

In this sense, they point to the probability that the uncertainty experienced by the consumer "continues and predictably even intensifies" in the coming months. "In the long run, this will have a negative feedback effect on the economy," they insist.

The firm is not the only one that points to a halt in consumption, the engine of the recovery, in the face of rising prices as the main risk for the economy, which may become more apparent in the autumn, once the summer holidays are over. Last week, the OECD published a report in which it assured that the increase in consumer prices is "undermining" household income, with a drop in disposable income in the case of Spanish families of 4.1% , four times more than the OECD and G7 average.

Sentix's monthly report, however, warns in particular about the situation in Germany, where the indicator has fallen to its lowest levels in May 2020. "Its economy remains firmly headed for recession," experts say.

Source link