Consumer confidence in the euro area continued its downward trajectory in December, with the flash estimate of the consumer confidence indicator dropping by 0.8 points to minus 14.5, some 1.1 points below the consensus forecast. This marks the second consecutive month of decline, pushing the indicator further below its long-term average. The persistent decline reflects growing pessimism among consumers. With confidence levels significantly below historical norms, consumer spending-the key driver of economic activity in the euro area-is likely to remain subdued.

The cumulative decline over the past two months signals a broader shift in sentiment, hinting at restrained optimism for economic recovery in the near term. This indicator serves as a critical barometer for future consumer spending patterns, and the current trend may weigh on broader economic growth forecasts for the euro area. Encouraging signals in other economic metrics may be necessary to counterbalance these concerns and stimulate positive momentum. The latest update takes the RPI to minus 2 and the RPI-P to minus 7. This means that economic activity is within the consensus of the euro area economy.

Forecasters see the index at minus 13.4 versus minus 13.7 in November.

Compiled by the European Commission, the flash consumer confidence index is a broad measure of consumer sentiment. It is based on monthly surveys of consumers from all the European Union countries. The survey probes into consumers' perceptions towards their past and expected future financial conditions, as well as their feel of the economy overall. This includes topics such as major purchase intentions for the next year, savings intentions, home improvements, purchase of a car, prices and unemployment, among others. This flash measure is based on only partial data and provides an early guide to the final index, published around a week later as part of the full Economic Sentiment survey.

The pattern in consumer attitudes can be a major influence on stock and bond markets. Consumer spending drives the lion’s share of the economy, and if the consumer is not confident, she will not be willing to pull out the big bucks. This Consumer Confidence survey offers key confidence data across the European Union and the European Monetary Union. Consumer confidence impacts consumer spending which affects economic growth. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth.

Since consumer spending accounts for such a large portion of the economy, the markets are always eager to know what consumers are up to and how they might behave in the near future. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. The index is a broad measure of consumer confidence in the EU members and because of its coverage of all the EU countries it is highly regarded in the financial markets as a good indicator of the mood of consumers in each country. It is also normally a good indicator of quarterly GDP.

Data are available for each country and are aggregated for both the EMU and EU. The data are seasonally adjusted and defined as the difference (in percentage points of total answers) between positive and negative answers. The survey is conducted by the European Commission rather than Eurostat, the compiler of most other EMU data and measures consumer confidence on a scale of -100 to 100, with -100 indicating extreme lack of confidence, 100 indicating full confidence and 0 indicating a neutral opinion. The long-term average of the series is around -14.