Euro-Area Economic Confidence Increases for Ninth Month

Photographer: David Ramos/Bloomberg

The commission’s index of confidence in the services industry rose to 2.3 in January, exceeding forecasts, today’s report showed. Close

The commission’s index of confidence in the services industry rose to 2.3 in January,... Read More

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Photographer: David Ramos/Bloomberg

The commission’s index of confidence in the services industry rose to 2.3 in January, exceeding forecasts, today’s report showed.

Euro-area economic confidence increased for a ninth month in January, led by the services industry, adding to evidence that the 18-nation currency bloc’s recovery is gaining traction.

An index of executive and consumer sentiment rose to 100.9 from a revised 100.4 in December, the European Commission in Brussels said today. That’s the highest reading since July 2011, though it missed the median estimate of 101 in a Bloomberg News survey (EUESEMU) of 34 economists.

European stocks and bonds have rallied amid signs that growth is gradually picking up in the euro zone, with economists estimating a 0.2 percent expansion in the fourth quarter after 0.1 percent growth in the previous three months, according to a Bloomberg News survey. Sovereign borrowing costs this month fell to euro-area records from Greece to Ireland while the Stoxx Europe 600 Index hit a six-year high.

“Growth in the euro area is gaining dynamism but it remains modest,” Ruben Segura-Cayuela, a former Bank of Spain economist who works at Bank of America Merrill Lynch in London, said by telephone. “Growth of 1 percent in the region this year won’t be enough to address concerns about public finances in some countries and will barely create jobs.”

The commission’s index of confidence in the services industry rose to 2.3 in January, exceeding forecasts, today’s report showed. Consumer confidence improved to minus 11.7 from minus 13.5 in December, and retail confidence rose to minus 3.4 from minus 5, the commission said.

Emerging Markets

“Further improvement in overall economic sentiment ties in with other data suggesting that the euro-zone recovery gathered momentum at the turn of the year,” Martin van Vliet, an economist at ING Bank in Amsterdam wrote in a note. The situation might change “if the turmoil in emerging markets further escalates and broadens.”

Inflation probably accelerated to 0.9 percent in January, according to a separate Bloomberg survey of economists. If that forecast is confirmed tomorrow, the rate will have been below the ECB’s 2 percent ceiling for a year. That may help reboot spending as households gain purchasing power.

Still, European Central Bank President Mario Draghi this month strengthened a pledge to keep interest rates low for as long as necessary. The economy is still struggling to grow amid subdued prices and the threat of rising market rates as the U.S. Federal Reserve tapers its monetary stimulus. Unemployment is at a record 12.1 percent.

Interest Rates

“Interest rates are low, but they can still be cut if needed,” ECB Governing Council member and Bank of Italy Governor Ignazio Visco said on Jan. 24. Within the ECB’s mandate, “there are assets that can be considered” for direct purchase in case of crisis, he said.

Industrial confidence slipped to minus 3.9 from minus 3.4 in December, today’s report showed, whereas economists had forecast an improvement to minus 2.9. In the construction industry, sentiment slumped to minus 30.1 from minus 26.4.

Ford, the second-largest U.S. automaker, is monitoring European job numbers as it counts on more drivers replacing aging vehicles to boost sales. “The unknown is when the unemployment levels start to change, and that would be an accelerant,” Stephen Odell, president of Europe operations, said this month.

The December unemployment (UMRTEMU) rate, which will be published tomorrow, is forecast to hold at 12.1 percent, according to a Bloomberg survey of economists.

To contact the reporter on this story: Angeline Benoit in Madrid at abenoit4@bloomberg.net

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

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