More Serious Than Last April, Eurozone Consumer Confidence Significantly Declines Due to US-Israel-Iran War

Caixin, March 24 (Editor: Shi Zhengcheng) — As the chaos caused by the US, Israel, and Iran conflict significantly drives up energy prices, consumer confidence in the Eurozone sharply declines in March.

Data released by the European Commission on Monday show that the preliminary consumer confidence index for the Eurozone in March was -16.3%, compared to -12.3% in February. The EU officials stated that this is the lowest point since October 2023. Additional statistics indicate that this decline is also the largest drop since March 2022, when European consumers were digesting the impact of the Russia-Ukraine conflict.

(Source: European Commission)

The survey was conducted from March 1 to March 22, entirely after the outbreak of the US, Israel, and Iran conflict on February 28.

Ankita Amajuri, a European economist at Monash Macro Economics, interpreted that the latest figures suggest that the initial impact of the Middle East war on Eurozone confidence is more severe than last year’s tariffs under Trump. She stated that, after the market focused mainly on inflation risks in the past two weeks, it is now also necessary to weigh the downside risk of economic growth weakening.

Meanwhile, inflation expectations in the Eurozone have also risen.

In last week’s updated quarterly economic forecast, the European Central Bank (ECB) raised its 2026 inflation forecast from 1.9% to 2.6%. Under the severe impact of the conflict on the economy, inflation in the region could reach 4%.

The ECB stated in a press release that the Middle East conflict significantly increases economic uncertainty, raises upside risks to inflation, and poses downside risks to economic growth. Several ECB governors also indicated last week that if the impact of the conflict on inflation is reflected in the latest data, the bank may need to consider a rate hike in April.

Michael Field, Chief European Market Strategist at Morningstar, lamented that until a few weeks ago, ECB rate decisions were relatively dull; now, with oil prices soaring, everything has changed.

The latest conflict occurs at a delicate moment when the Eurozone economy is showing signs of recovery. After the outbreak of the Russia-Ukraine war in 2022, consumer confidence in the Eurozone once fell to historic lows, and savings rates increased and remained high. Since the end of last year, signs of recovery in consumer confidence have appeared.

However, with the outbreak of Middle East conflict, rapidly rising oil prices immediately increased energy costs for European households. Meanwhile, market bets on higher inflation have also led some European families to face higher borrowing costs. Rising oil prices and borrowing costs will simultaneously squeeze residents’ disposable income.

At the same time, the ECB’s wage tracking indicator shows that this year, negotiated wage growth is 2.6%, roughly consistent with the policy target of keeping inflation around 2%.

(Caixin, Shi Zhengcheng)