While still riding well above its long-term average, the European Commission’s Economic Sentiment Indicator (ESI) for the eurozone fell half a percentage point to 109.2 in May as confidence in services and retail trade dipped.
Sentiment in the wider European Union (EU) fell 1% to 109.7, underperforming economist expectations that the indicator would hit highs of 110.
It previously rose to its highest levels since 2007 in April this year.
While industry confidence remained stable and consumer confidence was “robust” in the eurozone, pessimism towards the UK played a significant part in dampening down sentiment for the EU as a whole.
Ben Stoves, investment analyst at Rowan Dartington, said his team remained “cautiously optimistic” on Europe but added any shake in consumer confidence and spending may see them reconsider their moderately overweight position.
“From our point of view there has been promising data there for a while and valuations are more appealing there than in the US. Brexit puts a bit of a spanner in the works of course,” Stoves said.
He added: “If we see economic data drop off sharply that could cause us to relook at our position, if consumer spending is dropping in particular that would concern us.”
However, European Wealth’s investment director Richard Stammers said he remained wary about the continent.
He first moved to an underweight position before the Brexit referendum last year, the largest underweight position his team have held for “three or four years”.
He said: “We are not convinced that the whole Europe story is as clear as people think. It has become fashionable for people to like it.”