European Economic Confidence Holds Close to Its Highest Level Since 2007
European January Economic Confidence Holds
Michele Tantussi/Bloomberg
Siemens AG, Europe’s largest engineering company based in Munich, said on Jan. 25 that fiscal first-quarter profit increased more than estimated, led by demand among emerging markets.
Siemens AG, Europe’s largest engineering company based in Munich, said on Jan. 25 that fiscal first-quarter profit increased more than estimated, led by demand among emerging markets. Photographer: Michele Tantussi/Bloomberg
European confidence in the economic outlook held close to the highest in more than three years in January as manufacturers became more optimistic.
An index of executive and consumer sentiment in the euro area slipped to 106.5 from a revised 106.6 in December, the European Commission in Brussels said today. The December reading was the highest since September 2007. Economists had forecast a gain to 106.7, the median of 25 estimates in a Bloomberg News survey showed.
Europe’s economic growth has been powered by German companies boosting output and spending to meet export orders as countries from Spain to Greece trimmed their budget deficits. The region’s services and manufacturing growth accelerated in January and German business confidence surged to a record.
“Overall, the January reading confirms that the euro-zone economy entered 2011 with substantial forward momentum,” said Martin van Vliet, an economist at ING Group in Amsterdam. Still, “the country breakdown continued to show a deep economic chasm between core euro-zone countries and peripheral ones.”
A gauge of sentiment among manufacturers rose to 6 from 4.9 in December, today’s report showed. Services confidence fell to 9.2 from 9.6 and the index of consumer confidence slipped to minus 11.2 from minus 11. Sentiment among builders rose to minus 26 from minus 26.5 in December. The overall December confidence figure was revised up from an initial report of 106.2.
Reviving Earnings
German companies are reporting reviving earnings after the euro’s 2.7 percent depreciation against the dollar over the past year made goods more competitive just as the global recovery gathered strength. The country’s benchmark DAX benchmark index has gained 14 percent in the past six months.
SAP AG, the world’s largest maker of business-management software, yesterday forecast operating profit to surge as much as 16 percent this year. SAP Co-Chief Executive Officer Bill McDermot said he saw “rock solid revenue” across the globe and particularly in emerging markets.
The International Monetary Fund said on Jan. 25 that the global economy will probably expand 4.4 percent this year instead of a previously projected 4.2 percent. The euro-area economy may expand 1.5 percent in 2011, with Japan growing 1.6 percent and U.S. gross domestic product rising 3 percent, according to the IMF’s forecasts.
Economic Outlook
In the U.S. economy, the world’s largest, confidence among consumers rose more than forecast in January to the highest level in eight months. The New York-based Conference Board’s gauge for the economic outlook for the next three to six months also exceeded forecasts in December.
Siemens AG, Europe’s largest engineering company based in Munich, said on Jan. 25 that fiscal first-quarter profit increased more than estimated, led by demand among emerging markets. Alstom SA, the world’s third-largest power-equipment maker, said on Jan. 20 that orders growth may accelerate.
An indicator of manufacturers’ selling-price expectations rose to 16.5 from 15.2 in the previous month, today’s report showed. Capacity utilization rose to 80 percent in the first quarter from 78.1 percent in the previous three months, the commission said, and a gauge of new orders jumped to 24.2 from 19.2 in the fourth quarter.
European companies have relied on faster-growing markets as governments toughened austerity measures to push down budget deficits and restore confidence in the currency union. JPMorgan Chase & Co. CEO Jamie Dimon said during a panel discussion at the World Economic Forum in Davos, Switzerland, today that the EU is the “only good choice to get through the crisis.
‘Tough Measures’
“There’s a new kind of wind in Europe,” said Maurice Levy, CEO of Publicis Groupe SA, during the same panel discussion. Governments “implemented very tough measures.”
The European Central Bank has extended emergency liquidity measures for banks and purchased government bonds to help fight the crisis. ECB President Jean-Claude Trichet said yesterday that price expectations are stable and he didn’t repeat intensified rhetoric used two weeks ago that warned about the risks of faster inflation.
“We have a solid anchoring of inflation expectations,” Trichet said in an interview with Bloomberg Television at the WEF late yesterday. The ECB’s current benchmark interest rate is “appropriate,” he said.
Still, households grew more pessimistic about their financial situation over the coming 12 months, according to today’s report. A gauge measuring consumer expectations in unemployment fell to 19.9 from 21.3 in December and a sub- indicator measuring households’ assessment of price developments over the coming year jumped to 20.9 from 15.1.
Pricing Power
“With evidence that the recovery is steadily gaining sustainability and pricing power in the manufacturing sector is picking up strongly, we suspect that the ECB will not be able to retreat much from its toughened inflation rhetoric,” said Marco Valli, chief euro-region economist at UniCredit Bank AG in Milan. “However, a near-term hike remains quite unlikely.”
The ECB holds its next rate-setting meeting on Feb. 3 in Frankfurt. Estonia this month became the 17th nation to join the region.
To contact the reporter on this story: Simone Meier in Zurich at smeier@bloomberg.net
To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net
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