Europe: surprise deterioration in investor sentiment in May

Investor sentiment in the eurozone has fallen surprisingly since the start of May, with stubborn inflation and energy concerns upending expectations of a spring recovery, monthly survey results show. 

The Sentix index for the eurozone fell from -8.7 in April to -13.1 points in May. Analysts polled by Reuters news agency expected it to hit -8.0 this month. The sub-index measuring investor expectations fell to -19.0 in May, its lowest level since December 2022, after -13.0 in April, “destroying all hopes of an economic recovery after the outbreak of the crisis. war in Ukraine,” Sentix pointed out.

The barometer plunged into negative territory following the war in Ukraine in February 2022. The problem of energy shortages, slowing household consumption spending due to inflation, and consumer concerns about forced investment in their heating systems to mitigate climate change have all contributed to the spring weakening, Sentix continued.

In line with this, the Reuters news agency reported that the ruling coalition in Berlin decided in March that almost all newly installed heating systems in Germany should run on 65% renewable energy from 2024, at both in new and old buildings. Also according to Sentix, the eurozone economy has recovered in recent months, driven by strong demand for services, and many agencies, from the International Monetary Fund (IMF) to the European Central Bank (ECB ), have revised their forecasts for the EU upwards. But the recent weakness of the economy, particularly in the manufacturing sector, casts a shadow on this recovery, especially as galloping inflation is chipping away at purchasing power.

Germany's economy, Europe's largest, also suffered a dramatic fall in May, with the current situation index falling from -2.3 in April to -9.0, reigniting fears of a recession.According to the latest data from the statistics office, the manufacturing sector, which accounts for almost a fifth of the German economy, has struggled, only heightening fears of recession.Industrial production and orders posted larger than expected declines, which analysts said was a consequence of global rate hikes that are dragging the economy down.The survey was conducted with 1,276 investors between May 4 and May 6, according to Sentix.