Confidence in Euro Area Increases at Slower Pace Than Estimated: Economy

Euro-area confidence in the economic outlook improved less than forecast in January as the region’s leaders struggled to stamp out a two-year-old financial crisis and revive growth.

An index of executive and consumer sentiment in the 17- nation euro area rose to 93.4 from a revised 92.8 in December, the European Commission in Brussels said today. That’s the first increase since February 2011, though it’s less than the median prediction of 93.8 in a Bloomberg survey of 30 economists.

European Union leaders convene for their first summit of 2012 in Brussels today as a deteriorating economy and the struggle to complete a Greek debt swap risk undermining their crisis-fighting efforts. European Central Bank (EURR002W) President Mario Draghi said on Jan. 19 that 2012 will be a “much better” year for the single-currency area, though the International Monetary Fund forecast a recession.

“Today’s figures seem to indicate that the euro zone recession is bottoming out, although it would definitely be too soon to declare the recession over,” Peter Vanden Houte, an economist at ING Group in Brussels, wrote in an e-mailed note to clients. “The level of uncertainty remains too high. In the discussion on the resolution of the debt crisis European policy makers will have to walk a tight rope to preserve the current uptick in sentiment.”

Spanish Contraction

The euro was little changed after the data were released, trading at $1.3131 at 10:44 a.m. in London, down 0.7 percent. The Stoxx Europe 600 index was down 0.8 percent to 253.36.

A gauge of sentiment among European manufacturers held at minus 7.2 in January, today’s report showed. An indicator of services confidence rose to minus 0.6 from minus 2.6, while a measure of consumer confidence increased to minus 20.7 from minus 21.3, the commission said.

Uncertainty about the European economic outlook was compounded by Spain, whose economy shrank in the fourth quarter, pushing the country toward its second recession since 2009, the National Statistics Institute said today. The IMF forecast a recession for the single-currency region, with growth contracting 0.5 percent this year. The ECB last month cut its 2012 growth forecast for the euro region to 0.3 percent from 1.3 percent.

German Inflation

In Germany, data today showed inflation accelerated in four of the nation’s states as fuel and food costs increased. The inflation rate rose to 1.8 percent from 1.7 percent in North Rhine-Westphalia, to 2.2 percent from 2.1 percent in Brandenburg and to 2.3 percent from 2.2 percent in Saxony, the states’ statistics offices said today. Hesse on Jan. 27 reported its inflation rate climbed to 1.9 percent from 1.7 percent in December.

EU chiefs will aim to put the finishing touches on a German-led deficit-control treaty and endorse the statutes of a 500 billion-euro ($661 billion) rescue fund to be set up this year. Greece and its private creditors said Jan. 28 they expect to complete a deal in coming days after bondholders signaled they would accept European government demands for a bigger cut in their debt holdings.

Siemens AG (SIE), Europe’s largest engineering company, on Jan. 24 reported earnings that missed estimates as profitability dropped at its four main units. The company predicted that Europe will slip into recession in the coming months.

‘Credit Explosion’

In Asia, Chinese officials held off on a reduction in bank reserve requirements that some economists had predicted would come before a week-long holiday ending Jan. 28, suggesting they are cautious on more monetary easing.

Barclays Capital Asia Ltd., JPMorgan Chase & Co. and Industrial Bank Co. said this month that ratios were likely to fall ahead of the Lunar New Year festival, which boosts demand for cash. The central bank instead used reverse-repurchase contracts to add money to the financial system.

“The central bank aims to ease policies prudently and pace loan growth at the beginning of the year so as to avoid a replay of the credit explosion in 2009 and 2010 and prevent inflation from rebounding,” said Lu Zhengwei, a Shanghai-based economist at Industrial Bank. Lu now sees a reserve-ratio cut in February to add liquidity and spur growth after the reverse-repurchase contracts expire.

Elsewhere in the Asia-Pacific region, New Zealand’s central bank said that Governor Alan Bollard will quit in September. The Philippines reported that economic growth accelerated, with gross domestic product rising 3.7 percent in the fourth quarter, after a 3.6 percent gain in the third.

In the U.S., a Commerce Department report at 8:30 a.m. in Washington may show personal spending rose 0.1 percent in December, matching November’s gain, according to a Bloomberg survey of economists.

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.