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Euro-Area Confidence Increases as Recovery Takes Hold

Pedestrians Walk Along a Shopping Street in Pescara
Confidence in the retail sector increased to minus 7 from minus 10.6. Photographer: Marc Hill/Bloomberg

Economic confidence in the euro area increased more than economists forecast in September, adding to signs the single-currency bloc’s recovery is gaining momentum.

An index of executive and consumer sentiment rose for a fifth month to 96.9 from a revised 95.3 in August, the European Commission in Brussels said today. That beat the median estimate of 96 in a Bloomberg survey of 26 economists.

Signs of resurgence in the euro-area economy since it returned to growth in the second quarter after an 18-month contraction have boosted equities, with the Stoxx Europe 600 Index up more than 4 percent in the last two months. Yet Europe continues to struggle with the legacy of the debt crisis now in its fourth year, including falling industrial production and a jobless rate at a record 12.1 percent.

“With euro-zone economic sentiment continuing to turn up, the risk of a near-term relapse in economic activity is clearly dwindling,” said Martin van Vliet, an economist at ING Bank NV in Amsterdam. “However, with ongoing private-sector deleveraging in many euro-zone countries, and the ongoing deleveraging by governments (albeit at a slowing pace), the pace of recovery remains well below ‘escape velocity.’”

The euro was little changed against the dollar after the data were released, trading at $1.3505 at 12:47 p.m. in Brussels, up 0.1 percent on the day.

‘Striking Increase’

Confidence improved across the economic spectrum in September, with the index of industrial sentiment up to minus 6.7 from minus 7.8 in August and the services gauge rising to minus 3.3 from minus 5.2. Confidence in the retail sector increased to minus 7 from minus 10.6.

Sentiment in the financial-services industry, which isn’t factored into the economic confidence number, jumped to 11.3 from 5.2, “driven by a striking increase in managers’ demand expectations, as well as improving assessments of past demand and the past business situation,” the commission said in today’s report.

“Measures of confidence and surveys of production have given some support to the view that euro-area economic activity should continue its slow recovery in the current quarter, despite weak production data for July,” European Central Bank President Mario Draghi said on Sept. 23. “However, unemployment in the euro area remains far too high, and the recovery will need to be firmly established.”

Mixed Signals

Economists in a separate Bloomberg survey see economic growth slowing to 0.2 percent in the third quarter after a 0.3 percent expansion in the three months through June. Analysts forecast the jobless rate won’t drop below 12 percent through 2015.

Europe’s subdued economic climate is reflected in mixed signals from companies in the region. Some, such as Mota-Engil SGPS SA, Portugal’s largest construction company, are offsetting lower demand at home by expanding abroad.

Mota-Engil Chief Executive Officer Goncalo Martins said Sept. 19 that the company should post “very solid” results for the second half of 2013, with Africa and Latin America accounting for more than 60 percent of revenue.

Other companies are struggling in a European market just emerging from a record-long recession. Royal DSM NV, which has spent $3.2 billion on nutrition-ingredient acquisitions, said yesterday that 2013 profit may fall short of an initial target, weighed down by stagnant markets in Europe and lower chemical prices.

House Prices

The encouraging European economic news extended to the U.K., where house prices rose the most in more than a year in September as improving confidence and government measures helped drive buyers onto the market, Nationwide Building Society said.

U.K. consumer confidence rose to the highest in almost six years in September, and labor productivity rose for the first time in two years in the second quarter, led by the manufacturing industry.

In Asia, Japan’s inflation accelerated to the fastest pace since 2008 in August on higher energy costs, underscoring pressure on Prime Minister Shinzo Abe to drive wage increases as he seeks to end 15 years of deflation.

A shutdown of the U.S. government would reduce fourth-quarter growth in the world’s largest economy by as much as 1.4 percentage points depending on its length, economists say, as government workers from park rangers to telephone receptionists are furloughed.

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