Shopper confidence within the eurozone improved for the fifth consecutive month, reflecting optimism that the bloc’s financial system might undergo at worst solely a gentle recession regardless of the power disaster attributable to the Ukraine struggle.

The European Fee mentioned the flash estimate of its client confidence indicator for February, based mostly on a survey of about 32,000 individuals throughout the area, was up 1.7 factors to minus 19. That was its highest degree for a 12 months, although it remained beneath pre-coronavirus pandemic ranges and the long-term common and economists warned that the bloc’s financial system nonetheless faces a number of challenges.

Sentiment amongst European shoppers has been buoyed by the comparatively gentle winter, which helped to cut back power consumption, boosted fuel storage ranges and allayed fears of potential shortages.

European wholesale fuel costs have fallen to their lowest degree since earlier than Russia launched its full-scale invasion of Ukraine a 12 months in the past, growing hopes that eurozone inflation will proceed to fall after hitting a file excessive above 10 per cent in October.

Governments have additionally offered giant subsidies to help jobs and restrict the hit to disposable incomes from excessive power costs, whereas wage development in a lot of Europe has greater than doubled to virtually 5 per cent prior to now 12 months.

“A key help to client sentiment in 2022 was the power of the labour market, and our sentiment indicators recommend that is set to proceed at the very least within the brief time period,” mentioned Innes McFee, an economist at analysis group Oxford Economics.

Eurozone unemployment fell to a file low of 6.6 per cent in December. Nevertheless, inside this, McFee mentioned there have been indicators of job markets in Germany and Italy “softening shortly” because of the influence of the power disaster, although France, Spain and the Netherlands have been nonetheless “broadly steady”.

Though the European financial system has proved extra resilient than anticipated to the inflationary pressures attributable to Russia’s invasion of Ukraine, there are different indicators of deteriorating circumstances within the 20-member forex bloc. The variety of chapter filings by EU companies rose sharply within the fourth quarter to their highest degree since information started in 2015, lifted by a flurry of recent instances in Spain.

Constructing exercise seems to have been an early sufferer of rising financing prices and falling home costs, as revealed by official EU knowledge revealed on Monday, which confirmed manufacturing within the eurozone building sector fell 2.5 per cent from November to December, taking it again beneath pre-pandemic month-to-month ranges.

George Buckley, an economist in London at Japanese financial institution Nomura, mentioned client and enterprise surveys had “overstated the unfavorable development outlook” this winter, with the eurozone financial system defying recession fears by rising 0.1 per cent within the fourth quarter.

“The query now, nevertheless, is whether or not [the surveys] are overstating the near-term optimistic development outlook,” he mentioned, stating that the latest 3 proportion factors of rate of interest will increase by the European Central Financial institution had created the hardest financing circumstances for a decade.

Nomura forecast larger borrowing prices would drag the eurozone financial system right into a recession later this 12 months, though it might be comparatively brief and gentle — lasting three quarters and dragging output down 0.7 per cent from peak to trough.