Eurozone Economic Sentiment Inches Higher After Middle East Tensions Ease — Update

By Ed Frankl

Economic confidence in the eurozone edged higher in June, as selling-price expectations fell and after oil prices declined on cooling tensions in the Middle East.

The European Commission said Monday that its economic sentiment gauge rose to 95.0 from 93.7 in May, albeit remaining well below its long-term average of 100. A consensus of economists polled by The Wall Street Journal expected 94.5.

The pickup in the headline indicator was driven by improving confidence in most sectors surveyed--retail trade, industry and services--as well as among consumers, the commission said. However, sentiment in construction declined.

Views of the economy were helped as managers' selling-price expectations continued to decline from their April peaks, while consumers' views of inflation in the coming 12 months also eased.

Respondents were surveyed between June 1 and 22, overlapping with the announcement of the suspension of hostilities between the U.S. and Iran. During the period, the European Central Bank also raised its key interest rate for the first time in almost three years.

The outbreak of the conflict in Iran sent oil and natural-gas prices surging as the closure of the Strait of Hormuz rippled through energy markets. Economic sentiment in the 21-nation eurozone had been improving for much of the last year, but slumped after the first U.S.-Israeli strikes on Iran.

Oil prices have been falling through most of June and returned to prewar levels last week.

Encouragingly for the ECB, selling-price expectations in the services sector also fell back in line with levels from the start of the year, suggesting inflation is unlikely to rise any further, Capital Economics assistant economist Harry Chambers said in a note to clients.

"This supports our view that the ECB will leave interest rates unchanged at its next meeting in July," he added.

The ECB this month trimmed its eurozone growth forecasts to 0.8% and 1.2% for this year and 2027, respectively, on the impact of the Iran war on the economy.

Write to Ed Frankl at edward.frankl@wsj.com