BlackRock Investment Institute

Macro insights

European sentiment plunges

The fallout of the war in Ukraine looks set to hurt economic activity in Europe substantially more than in the U.S. Consumer confidence in the euro area has taken a knock almost as big as it faced at the start of the pandemic, as the orange line in the chart shows. European businesses also appear less confident about the next six months. A survey of German firms by the Ifo Institute reveals the sharpest decline in expectations on record (yellow line). The reverse is true in the U.S. A Philadelphia Fed survey of non-manufacturing companies shows a pick-up in sentiment (pink line).

Shock goes beyond energy

Chart showing the Euro area survey data falling

Sources: BlackRock Investment Institute, with data from Haver Analytics, April 2022. Notes: The survey data are expressed in terms of standard deviations away from the average, calculated over the period 2000-2019 (or later in the data history is shorter).

This aligns with our view that the European economy is more at risk than the U.S. from the commodities shock. It also shows the shock is broader than the effect of higher energy prices alone. For example, supplies of key production components such as car parts have been disrupted, posing extra risks for manufacturers. Plus, dented confidence can drag down consumer spending and business investment. We think consumers are now less likely to spend excess savings built up during the pandemic.

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Elga Bartsch
Head of Macro Research
Read bio
Nicholas Fawcett
Macro Research

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