Sustained weakness in consumer confidence could threaten the euro area's modest recovery

EZ consumer confidence defied market expectations, fell for a third straight month in March. According to Eurostat, the consumer confidence in the euro zone (flash indicator) fell 0.9p to -9.7 in March. Eurozone consumer confidence weakened amid worries about weaker growth prospects for the global economy.

The index is at its lowest level since December 2014. The data missed market consensus which had expected a pickup in confidence. Still, the index is higher than the long-term average of minus 12.8, and indicates that consumers don’t yet feel pessimistic about their prospects.

The decline of confidence is in line with surveys of business activity, which have pointed to a weakening of growth in the early months of 2016. But official measures of industrial production and construction pointed to a surge in activity during January, while retail sales were also up, leaving it far from clear that the eurozone recovery has started to falter.

Consumer spending has been a main support for the currency area’s recovery since its return to growth in mid-2013. If the weakness in consumer confidence is sustained, it could threaten the already modest recovery.