Italy result sends euro zone sentiment lower

Monday 04 March 2013 18.23
Euro zone ended six month trend of improving sentiment in March
Euro zone ended six month trend of improving sentiment in March

Euro zone sentiment tumbled in March, ending a six-month trend of gains due to fears of renewed political uncertainty following Italy's inconclusive election.

The Sentix research group said its monthly index tracking investor sentiment in the euro zone fell to -10.6 in March from -3.9 in February.

This compared to a Reuters consensus forecast of -5.2.

"The reason for this setback is obvious: it is the outcome of the election in Italy which has caused uncertainty over the country's future development to skyrocket," Sentix said in a statement. 

"This has had a negative impact on the whole euro zone,'' it cautioned.

A sub-index of expectations fell to 8.3 in March from 15.8 in February. Current conditions stood at -27.8, down from -21.8 last month.

Italy's election last month left no one with a working majority in parliament and the main political parties have made no progress towards forming a stable government, raising the prospect of another round of elections.

Two parties opposed to austerity policies made strong gains in the election and the spread between Italian 10-year benchmark bonds and German bunds - a measure of investor confidence - widened today to an almost three-month high.

However, a separate index for Germany showed investors' sentiment in the euro zone's largest economy remained firm, at 24.5 in March, up slightly from 24.3 last month. This is its highest level since July 2011.