Europe Economy

Euro Zone Inflation Slows, Economic Sentiment Sags


Euro zone inflation slowed more than expected in April, an early estimate showed, but economic sentiment also deteriorated faster than forecast, pointing to slowing economic growth.

Consumer prices in the 15 countries using the euro rose 3.3 percent year-on-year in April, European Union statistics office Eurostat estimated, down from a record high 3.6 percent in March.

The estimate does not contain monthly data or details.

Economists polled by Reuters had forecast inflation at 3.4 percent, although some had revised down their forecasts on Monday after lower-than-expected data on inflation in Germany.

The European Central Bank wants inflation to be just below 2 percent over the medium term, and has so far refrained from an interest rate rise because it expects inflation to ease towards its goal next year.

Price growth is likely to slow because of base effects in the annual comparison, but also because the euro zone economy is slowing sharply due to global financial market turmoil, a slowing U.S. economy, a strong euro and high oil prices.

A monthly survey from the European Commission showed that selling price expectations among businesses eased in April to 12 from 13 points, but consumer inflation expectations for the next 12 months picked up slightly to 28 from 26 points.

The Commission's monthly survey also showed that economic sentiment in the single currency area slumped to its lowest since August 2005 at 97.1 points from 99.6 points in March.

Economists had expected a decline to 99 points.

The decline in confidence was broad-based, led by a 6-point drop in sentiment in the retail sector and a 3-point fall in construction.

Confidence in industry and services fell 2 points, with only consumer confidence stable, at -12 points for the fourth month running.

The European Commission forecast on Monday that euro zone growth would slow to 1.7 percent this year and 1.5 percent in 2009 from 2.6 percent in 2007.

A separate business climate indicator for the euro zone fell more than expected to its lowest level since January 2006 in April, pointing to a slowdown in economic growth in the second quarter of 2008, the European Commission said.

Yet unemployment in the euro zone remained at a record low of 7.1 percent of the workforce in March.