19 Jun 2012

European debt crisis clouds not fading yet - economist

7:17 am on 19 June 2012

Europe's bank stocks have plummeted and global share markets were mixed on Monday as investors worry that the euro zone debt crisis is far from over, despite Greece's pro-bailout election result.

The crisis is shaking consumer confidence in New Zealand, with the Westpac McDermott Miller Consumer Confidence Index declining to 99.9 in the June quarter. A reading below 100 indicates pessimists outnumber optimists.

Westpac senior economist Felix Delbruck says Sunday's election result in Greece, which showed support for pro-bailout parties, has helped to ease some nerves, and it's probably the most positive outcome markets could have hoped for.

There had been fears that if anti-bailout party Syriza had won the election, Greece could have been forced out of the euro.

But Mr Delbruck says it's too early to say the dark clouds are dispersing.

"They're still working through coalition negotiations, all of the parties in Greece to some extent want to renegotiate the terms of that bailout, so I think we can still expect quite a period ahead of negotiations and back and forth politics and ongoing uncertainty, so I don't think we're out of the woods yet".

Mr Delbruck says despite people becoming increasingly worried about the state of the economy, consumers are feeling financially better off than they were three months ago and more think now's a good time to buy a major household item.

He says the Reserve Bank has been factoring such a discrepancy into its own thinking, which is why it will keep interest rates low for a while, before the rebuild in Christchurch takes hold and inflation pressure builds.