Euro zone economic mood eases more than expected in March, bodes ill for first quarter

[March 28, 2019] BRUSSELS (Reuters) - Economic sentiment in the euro zone weakened more than expected in March, mainly due to a bleaker outlook among manufacturers and services, suggesting first-quarter growth could be lower than previously thought, European Commission data showed on Thursday.

The Commission said in its monthly survey that its index of economic sentiment in the 19 countries sharing the euro eased to 105.5 points in March from 106.2 in February, weaker than the 105.9 reading expected by economists polled by Reuters.

"The decline ... shows that business confidence continues to suffer and that the start of a growth recovery hasn't really happened so far. First quarter GDP is therefore set to disappoint again," ING economist Bert Colijn said.

The European Commission forecast in February that euro zone growth would accelerate to 0.3 percent quarter-on-quarter in January-March from 0.2 percent in the last three months of 2018, and then speed up to 0.4 percent in subsequent quarters.

Separately, the Commission's business climate index, which helps point to the phase of the business cycle, fell to 0.53in March from 0.69 in February, against a decline to only 0.66 that was expected by economists.

The mood in both key sectors of the euro zone economy -- industry and services -- turned out worse than forecast, with industry declining to -1.7 point from -0.4 in February against expectations of a fall to only -0.8 and services easing to 11.3 from 12.1 against expectations of a decline to 12.0.

"The fact services sentiment declined is a serious concern," said Rosie Colthorpe, assistant economist at Oxford Economics.

"It perhaps reflects the fact that worries in the externally-focused manufacturing sector are starting to spill over to the domestic economy. Overall, continued weak sentiment readings present a downside risk to our first euro-area GDP forecast of 0.4 percent quarter-on-quarter."

The survey showed that consumers expectations about prices 12 months ahead eased in March to a reading of 17 from 18 in February and selling price expectations in industry also declined to a reading o 7.0 in March from 9.0 in February, continuing a falling trend from the start of the year.

(Reporting By Jan Strupczewski; Editing by Hugh Lawson)

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