(Recasts with economists' comments)
By Jan Strupczewski
BRUSSELS, June 27 Euro zone economic sentiment
fell unexpectedly in June on fears that fighting in Iraq would
push up oil prices and that any escalation of the Ukraine crisis
could drag on euro zone growth.
The European Commission's economic sentiment index (ESI) for
the 18 countries that share the euro fell to 102.0 from a
revised 102.6 in May. Economists had forecast a rise to 103.0.
The decline was mainly due to a drop in optimism in the
industry and construction sectors, and among consumers.
"Because this loss in momentum spreads across a large number
of member states ... a common cause, ie geopolitical risks,
seems likely," said Evelyn Herrmann, economist at BNP Paribas.
"Indeed, the potential of unexpected rises in oil prices
driven by uncertainty in Iraq are a downside risk to growth. The
potential for further sanctions on Russia is also a looming risk
to the euro zone growth outlook."
The Commission's survey is typically carried out in the
first half of the month, since when tensions have eased between
Moscow and western countries over Ukraine, where an uprising by
pro-Russian separatists has claimed hundreds of lives.
Oil prices have dropped nearly $3 from a nine-month high of
$115.71 hit on June 19 as output from Iraq's major southern
oilfields remained unaffected by fighting in the north and west.
The decline in economic sentiment confirms earlier poor data
such as the Purchasing Managers Indexes (PMIs) and adds urgency
to European Union leaders' attempts to accelerate growth.
"The good news from the euro zone is that the economy is
growing again. The bad news is that growth is excruciatingly
slow," said Christoph Weil, economist at Commerzbank.
Euro zone gross domestic product growth slowed to 0.2
percent quarter-on-quarter in the first three months of the year
from 0.3 percent in the previous quarter.
Herrmann said that at current levels, the index still
pointed to an acceleration of growth in the April-June period in
the euro zone, although risks of a slowdown were growing.
"The ESI's Q2 average edged up 0.5 points q/q to 102.2, in
line with our GDP growth forecast of 0.4 percent q/q. With
surveys drifting slightly lower towards the end of Q2, however,
the risks for a slower momentum in Q3 are rising," she said.
The Commission survey showed too that consumer inflation
expectations 12 months ahead fell to 8.6 in June from 9.6 in
May, continuing a trend started last October when the reading
was at 16.8 and inflation started slowing sharply.
In contrast, inflation expectations among manufacturers
improved to -0.1 in June from -1.3 in May.
Euro zone consumer inflation slowed to 0.5 percent
year-on-year in May from 0.7 percent in April, prompting the
European Central Bank to further ease monetary policy to bring
price growth closer to its goal of just below 2 percent.
(Reporting by Jan Strupczewski; Editing by Catherine Evans)