Eurozone consumer confidence improves less than expected in January

Eurozone consumer confidence improved less than expected in January, according to flash figures released by the European Commission on Wednesday.

The confidence indicator for the eurozone rose to -7.9 this month from a downwardly-revised -8.3 in December, but came in well below consensus expectations for a reading of -6.5.

The indicator for the EU, meanwhile, ticked down 0.2 points to -7.8.

Still, both remained well above their respectively long-term average of -11.3 and -10.5.

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said it was a "somewhat confusing" report.

"Overall, the headline and revision look horrible, but sentiment did edge slightly higher in January, which is the first increase since October. We suspect volatility around the French yellow vest protests was the main driver of this volatility. The hit to sentiment in December, when the protests were strongest, probably was more severe than expected, providing a low base for a rebound this month.

"We won’t know for sure until we see the final and detailed data. We also need a few more months of data in 2019 to ascertain whether the trend is turning down further. It shouldn’t be given that inflation is now falling, providing a lift to real incomes."

Melanie Debono, European economist at Capital Economics, said the small increase in eurozone consumer confidence leaves it consistent with fairly modest household spending growth and might have been driven by the fall in inflation at the end of last year and the fading of the yellow vests protests.

"Looking ahead, the outlook for consumer spending is mixed. On the basis of past form, the consumer confidence index points to a slight pick-up in household spending growth from 1.0% year-over-year in Q3 to between 1.0% and 1.5%.The fall in the unemployment rate over recent months suggests that wage growth will pick up in the coming months.

"Meanwhile, our forecast for lower oil prices points to inflation remaining subdued which should boost households’ real incomes, supporting consumer spending. However, we suspect that consumers will save a lot of this windfall as the saving rate is well below its historical average and the euro-zone economy has lost a lot of momentum. As a result, although consumers may take up some of the slack from weaker exports, the overall economy will continue to expand at only a modest pace. We forecast GDP to grow by 1.0% this year and 0.8% next year, around the region’s long-term potential growth rate."