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Euro-Area Economic Confidence Jumps to Highest in 15 Months

Euro-Area Economic Confidence Jumps to Highest in 15 Months
The push toward renewed growth has been driven by Germany, Europe’s largest economy, where business confidence improved for a third month in July, the Ifo institute said on July 25. Photographer: Krisztian Bocsi/Bloomberg

Economic confidence in the euro area improved for a third month in July, reaching the highest in 15 months and adding to indications the 17-nation currency bloc is emerging from a record-long recession.

An index of executive and consumer sentiment rose to 92.5 from 91.3 in June, the European Commission in Brussels said today. That is the highest reading since April 2012 and matched the median estimate in a Bloomberg News survey of 31 economists.

Europe’s economy is showing increasing signs of revival after six quarters of contraction. Euro-area manufacturing expanded this month for the first time in two years and economists estimate gross domestic product stopped shrinking in the three months through June and will return to growth this quarter, according to a separate Bloomberg survey.

“It is very reassuring to see an element of improvement coming through,” said Victoria Clarke, an economist at Investec Securities London. “We still have quite a long way to go to get back to pre-crisis levels.”

The euro was higher against the U.S. dollar after the confidence data, trading at $1.3270 at 11:28 a.m. in Brussels, up 0.1 percent on the day. The Stoxx Europe 600 Index was little changed at 299.04.

Renewed Growth

The push toward renewed growth has been driven by Germany, Europe’s largest economy, where business confidence improved for a third month in July, the Ifo institute said on July 25. Data today from Spain showed that the recession in the fourth-biggest euro-area economy eased in the second quarter, lending support to the government’s prediction of a recovery in the second half.

Germany’s Daimler AG, the world’s third-largest maker of luxury vehicles, forecast gains in second-half earnings as new models spur purchases. Daimler on July 24 forecast industrywide demand in western Europe will show “gradual improvement” in the second half as sales seem to have “bottomed out.”

Manufacturers across the currency bloc have increased their capacity utilization to the highest in more than a year, today’s report showed. An indicator of capacity usage at euro-area factories increased to 78.3 percent for the current quarter, the highest since the second quarter of 2012, the commission said.

European Central Bank President Mario Draghi earlier this month took what he called an “unprecedented” step and told investors that interest rates in the euro area would stay low as the economy struggles, lending is weak and inflation pressures remain subdued. The ECB’s benchmark rate is at a record low 0.5 percent.

Jobless Rate

Unemployment in the euro zone probably stayed at a record 12.2 percent in June and is projected to move higher in coming quarters, according to Bloomberg surveys of economists. The jobless rate will reach 12.4 percent in the fourth quarter and average 12.3 percent next year, a monthly poll shows.

Draghi said euro-area domestic demand later this year and in 2014 “should be supported by the accommodative monetary-policy stance as well as the recent gains in real income owing to generally lower inflation.” Consumer-price growth has been below the ECB’s 2 percent ceiling for five months.

Renault SA, France’s second-biggest carmaker, last week reported unexpected growth in first-half profit as labor-cost cuts and higher vehicle prices more than offset slumping sales. Paris-based Alcatel-Lucent SA today reported second-quarter earnings that topped analysts’ estimates.

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