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Economy in Brief

Consumer and Business Confidence in the Euro Zone Declines in May
by Louise Curley May 31, 2005

Both business and consumer confidence in the Euro Zone declined in May as shown in the first chart. Consumers have been more pessimistic than businesses since October 2002. The percent balance between those consumers who were optimistic and those who were pessimistic reached a low point of -21 in March 2003. After improving through the rest of 2003, the percent balance has ranged between -13 and -15. The percent balance was at the low end of this range in May. The high unemployment rate in the Euro zone may account for much of the pessimism of consumers. The rate has ranged narrowly between 8.8% and 8.9% for the past year and a half.

Business confidence as represented by the percent balance of respondents in the industrial sector who believe conditions will improve over those who believe conditions will worsen declined to -11 from -9 in April. Although business confidence has been stronger--in that it has been less negative--than that of consumers since October, 2002, it has since declined sharply--from -3 in November of last year to -11 in May, a level last seen in August 2003. Among the more commonly cited causes of the decline in business confidence are the high and rising oil prices and the rise in the value of the Euro that are shown in the second chart.

Business confidence has been affected adversely by rising oil prices and the rising value of the euro. The recent history of both of these factors are shown in the second chart.

Euro Zone Confidence (Percent Balance) May 05 Apr 05 May  04 M/M dif Y/Y dif  2004    2003  2002
Consumer -15 -13 -15 -2 0 -14 -18 -11
Business -11 *13 -5 -2 -6 -5 -10 -11
Factors Affecting Business Confidence Apr 05 Mar 05 Apr  04 M/M % Y/Y %  2004    2003  2002
Brent Crude $/bbl.) 52.22 53.13 33.15 -1.71 57.53 38.22 28.80 24.89
Euro/US$ 1.2957 1.2964 1.1947 -1.99 7.95 1.3621 1.263 1.0487
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