Monday 23 October 2017

Euro confidence hits 18-month high

Martin Santa

Economic confidence in the eurozone reached a 15-month high in July as sentiment improved in its four biggest economies, underpinning Europe's chances of a gradual exit from nearly three years of economic downturn.

The single currency bloc of 17 countries is stuck in the longest recession in its history, and the chances of a swift recovery are limited by record-high joblessness and stringent austerity measures.

But in a positive sign, the European Commission said yesterday that its economic sentiment index rose to 92.5 points this month – its highest since April 2012 – from 91.3 points in June, though slightly lagging market expectations of an improvement to 92.6.

Separately, the eurozone's business climate index, which measures the phase of the business cycle, improved to minus 0.53 points in July from minus 0.67 in June, also the best reading in 15 months.

Howard Archer, European economist at IHS Global Insight, said: "Further clear pick-up in economic sentiment to a 15-month high supports hopes that eurozone economic activity has stabilised and could very well eke out marginal growth over the second half of the year." Confidence improved across all areas except construction, with only one of the Eurozone's five biggest economies – the Netherlands – deteriorating, by two points in July, while Germany's reading rose by 0.7 points and France was up by 1.2 points.

The Spanish economy saw sentiment improving last month by 1.2 points to 93.5.

A rebound in consumer spending would support growth, though the ECB expects exports to be the main driver of economic recovery.

Economists said July's upbeat data make it unlikely that the ECB will cut interest rates at a policy meeting tomorrow, leaving its benchmark interest rate at a record low of 0.5pc.

The rise in confidence in the industry sector stemmed from a sharp improvement in production, with output expectations and overall order books also improving.

Economists, however, say fiscal tightening in Europe, high unemployment and tight credit conditions still give plenty of reasons to remain vigilant.

ING senior economist Martin van Vliet said: "While it is encouraging to see that confidence is moving in the right direction, there is still a long way to go before we can realistically suggest that animal spirits have returned."

Irish Independent

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