Eurozone consumer and business confidence levels dropped to their lowest on record as households brace for a possible recession amid record inflation and the risk of a Russian energy cutoff.

The Italian National Institute of Statistics (ISTAT) issued a report on Friday that stated "Perspectives for the euro area as a whole are worsening. In July, the Economic Sentiment Indicator (ESI) plummeted -4.5 points, falling below its long-term average. The drop was due to significant losses in the industry, services, retail trade, and consumer confidence, whereas confidence in construction decreased more mildly."

The report added that the ESI fell markedly in Spain, Germany, and Italy while remaining broadly stable in France.

Eurozone's ESI amounted to just over 95 points in February 2021 and fell from nearly 115 points in January to about 100 in July.

In a report published last week, the EU commission said that "the substantial decrease in industry confidence (-2.8) resulted from significant deteriorations in managers’ assessment of the current level of overall order books and their production expectations, which dropped to a 20-months low."

It added that "The further substantial drop in consumer confidence (-3.0) resulted from marked deteriorations in all four components. Both households’ assessment of their past financial situation and their outlook on their future financial situation hit all-time lows and their intentions to make major purchases and expectations about the general economic situation fell to the lowest levels since April 2020."

Since 2021, energy prices in Europe have been growing as part of a global trend. After the beginning of Russia's operation in Ukraine and the adoption of several packages of sanctions against Moscow in the West, inflation accelerated and fuel prices have been growing exponentially.

As a result of this, inflation accelerated across the eurozone since the beginning of the year, growing from 5.9% in February to 8.6% in June and 8.9% in July.

Last week, the EU energy ministers reached a political agreement on the "Save Gas for a Safe Winter" plan on coordinated demand reduction measures for gas.

The emergency plan recommends a voluntary 15% cut in natural gas consumption from August 2022 to March 2023, which the member states will institute "with measures of their own choice".

Several nations have already voiced their opposition to consumption cuts, including Italy, Poland, Hungary, Portugal, Greece, and Spain.

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