Europe Economic Confidence Reaches Highest Since Late 2007 on German Boom
Europe Economic Confidence Rises More Than Forecast
Fabrice Dimier/Bloomberg
The euro-area economy is showing signs of gathering strength after expanding less than economists forecast in the fourth quarter.
The euro-area economy is showing signs of gathering strength after expanding less than economists forecast in the fourth quarter. Photographer: Fabrice Dimier/Bloomberg
Feb. 24 (Bloomberg) -- Michala Marcussen, head of global economics at Societe Generale, discusses European Central Bank policy as it weighs the impact of inflation on the economy. She talks with Francine Lacqua on Bloomberg Television's "On The Move." (Source: Bloomberg)
European confidence in the economic outlook improved more than economists forecast to the highest in 3 1/2 years in February, led by surging optimism in Germany.
An index of executive and consumer sentiment in the euro region advanced to 107.8 from 106.8 in January, the European Commission in Brussels said today. That’s the highest since August 2007. Economists had forecast a February reading of 106.8, the median of 28 estimates in a Bloomberg survey showed. A gauge of German economic confidence rose to 116.8 from 115.5.
The euro-area economy is showing signs of gathering strength after expanding less than economists forecast in the fourth quarter. German business confidence jumped to a record this month and the region’s services and manufacturing growth accelerated. BASF SE, the world’s largest chemical company, said today that it is “optimistic” about this year.
“Confidence indicators have continued to surprise on the upside and the region’s recovery remains very much on track,” said Simon Barry, chief economist at Ulster Bank in Dublin. “There’s still uncertainty, but we ended 2010 with some reasonable momentum and indicators have continued to build on that.”
A gauge of sentiment among euro-region manufacturers rose to 6.5 this month from 6.1 in January, today’s report showed. Services confidence jumped to 11.1 from 9.9 and an index of consumer confidence advanced to minus 10 from minus 11.2. Sentiment among builders rose to minus 24.3 from minus 26.
Economic confidence also improved in Spain and the Netherlands while declining in France, Italy and Belgium.
Investor Confidence
The German economy, Europe’s largest, may continue to drive the region’s expansion this year after unusually cold temperatures sparked a construction slump in the fourth quarter and eroded economic growth. German investor confidence rose in February and output accelerated. Unemployment dropped to the lowest in almost two decades last month.
Infineon Technologies AG, Europe’s second-biggest chipmaker, on Feb. 17 forecast higher full-year sales. Chief Executive Officer Peter Bauer said on that day that the company is “firing on all cylinders” and that the “volume of orders is excellent.” PPR SA, the French owner of Gucci, the same day reported 2010 profit that beat analysts’ estimates on surging fourth-quarter sales.
Faster-growing Asian economies have helped spur companies’ orders as governments from Greece to Ireland toughened austerity measures. The International Monetary Fund last month forecast China’s economy will grow 9.6 percent this year with India expanding 8.4 percent. The euro region may grow 1.5 percent.
‘Major Boon’
BASF said today that fourth-quarter profit more than doubled, beating analysts’ estimates. The Ludwigshafen, Germany- based company is “optimistic for the first quarter and the year as a whole,” CEO Juergen Hambrecht said in a statement.
“Euro-zone manufacturers will be hoping that global growth holds up well in 2011 and that the euro trades at a relatively competitive level,” said Howard Archer, chief European economist at IHS Global Insight in London. “Certainly, foreign demand is currently a major boon” for them.
An indicator of manufacturers’ order books rose to minus 1.4 in February from minus 2.7 in the previous month, today’s report showed. An indicator of employment expectations rose to 6.6 from 5 and a gauge of selling-price expectations jumped to 22.7 from 17.3 in January. A gauge of households’ willingness to purchase big-ticket items such as cars over the coming year rose to minus 23.7 from minus 24.2 and an indicator of price developments rose to 25.7 from 20.9.
ECB Concerns
European Central Bank President Jean-Claude Trichet has already signaled concern about faster prices feeding into wage demands and leading to more protracted inflation. ECB Executive Board member Juergen Stark said on Feb. 21 that the central bank is prepared “to act decisively and immediately” if needed to maintain price stability.
The Frankfurt-based central bank, which aims to keep inflation just below 2 percent, will publish its latest economic projections on March 3. ECB council member Yves Mersch said in an interview on Feb. 21 that he expects the bank’s economists to lift their 2011 inflation forecast to more than 2 percent from 1.8 percent predicted in December. Inflation accelerated to 2.4 percent last month.
“Interest rates are at an exceptionally low level, which was warranted by an environment where there was anemic growth and even negative growth over a prolonged period, and therefore no inflationary pressures,” Mersch said. “This situation has now changed and this would mean that inevitably we also have to rebalance our monetary policy stance.”
The ECB’s main lending rate is currently at a record low of 1 percent.
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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