Eurozone consumer confidence falls more than expected in March

Eurozone consumer sentiment deteriorated more than anticipated in March, underlining concerns over economic momentum as the region faces the threat of US trade tariffs.

Consumer confidence in the euro area fell to -14.5 points in March from -13.6 in February, missing forecasts of a more moderate decline to -13, according to flash estimates from the European Commission released on Friday.

The data, collected between 1 and 20 March, reflects growing unease among consumers about the strength of the recovery and external risks, including the potential inflationary effects from higher tariffs.

“Consumer confidence veered further away from its long-term average again,” according to the report.

On Thursday, ECB President Christine Lagarde told the European Parliament that the prospect of higher US tariffs could shave as much as 0.5 percentage points off eurozone growth while adding a similar amount to inflation.

The US is set to impose reciprocal tariffs on European goods as early as April 2, with the EU’s countermeasures delayed until mid-April.

Germany’s fiscal shift: A game changer?

Germany’s upper house of parliament, the Bundesrat, on Friday approved a landmark spending package that dismantles decades of fiscal restraint. The plan, which includes a €500 billion fund for infrastructure and eases borrowing restrictions for defence spending, signals a major policy shift in Europe’s largest economy.

"The German fiscal policy packages are a game changer for the outlook," said Ruben Segura-Cayuela, an economist at Bank of America.

Yet, he cautioned that while financial markets responded positively, the real economic impact will depend on how funds are allocated and when they are deployed.

“To us, the German fiscal paradigm shift is a change to the economic outlook for the second half of 2026 at the earliest, and more tangibly for 2027-30, provided spending is even remotely productive,” he said.

The shift could provide medium-term support for economic activity, but its long-term success will rely on structural reforms and responsible fiscal management.

“Even under a less optimal use of fiscal firepower, we would still argue the German economy could be socio-economically better off than under the status quo,” Segura-Cayuela added.

Market reactions

The euro fell 0.5% to $1.0820 by 4:30 p.m. Central European Time, heading for a weekly loss after two consecutive weeks of gains.

Euro area sovereign bond yields declined on Friday, with German 10-year Bund yields slipping 2 basis points to 2.77%.

Italy’s 10-year BTP yield dropped 6 basis points to 3.82%, pushing the closely watched BTP-Bund spread to 105 basis points—its lowest level since November 2021.

European stocks extended losses as economic concerns weighed on investor sentiment. The STOXX 50 index fell 0.8%, while the broader STOXX 600 lost 0.6%.

Deutsche Post, Siemens, and Schneider Electric were among the worst performers on the Euro STOXX 50, with declines of 2% to 2.5%.

Losses were also visible within the travel and leisure sector as a fire at an electrical substation forced the closure of London’s Heathrow Airport, disrupting flights across Europe.

Shares of International Airlines Group and Ryanair Holdings plc fell 2.8% and 2.3%, respectively. Lufthansa AG and Easyjet plc were down by 2% and 1%, respectively.