Eurozone confidence rises to highest level in two years as job fears ease
Published 31/08/2010 | 05:00
Economic confidence in the 16 countries that use the euro rose to its highest level in nearly two-and-a-half years during August, the European Commission said yesterday.
The commission said its main economic sentiment indicator soared to 101.8 in August -- its highest since March 2008 -- from 101.1 in July.
The main reason behind the rise was another improvement in consumer confidence as unemployment concerns eased -- so far, improvements in consumer confidence have not led to an appreciable increase in spending.
The increase in sentiment will stoke hopes that economic activity in the eurozone economy is holding up pretty well despite budgetary retrenchment in countries like Greece and a loss of momentum in the US and Japan.
Germany, the eurozone's biggest economy, continues to drive the recovery, the commission added.
A particularly strong economic rebound in Germany during the second quarter, largely on the back of a sharp pick-up in exports, contributed to the 1pc quarterly rise across the whole eurozone.
Although yesterday's figures will likely cheer policymakers, the European Central Bank is not expected to change policy when it meets on Thursday and is due to keep its main interest rate unchanged at 1pc.
With unemployment still around 10pc across the eurozone, wage growth muted and a number of governments poised for further spending cuts and tax increases to get their public finances back into shape, the outlook for the second half of the year remains less favourable.
"While the ECB forecasts are likely to show an upward revision to 2010 GDP growth this Thursday, policy rates are expected to remain on hold for a while and the governing council looks set to remain very cautious on the back of strong divergences across countries," said Frederik Ducrozet, eurozone economist at Credit Agricole.