Euro-Area Sentiment Unexpectedly Rises to Four-Year High

  • Economic confidence index increases to 105.6 from 104.1
  • Economists predicted sentiment would deteriorate in September

Euro-area economic confidence unexpectedly increased in September to the highest in more than four years as sentiment in the industrial and services sectors improved.

The index of executive and consumer confidence rose to 105.6 in September from a revised 104.1 in August, the European Commission in Brussels said on Tuesday. That’s the highest reading since June 2011. Economists predicted a decline to 104.1 from a previously reported 104.2, according to the median estimate in a Bloomberg survey.

With sentiment improving from Germany to Italy, the data add to signs that the euro area’s recovery can withstand an economic slowdown in emerging markets such as China. A gauge of manufacturing and services activity in the region is signaling growth of 0.4 percent this quarter amid rising orders. That would match the pace in the three months through June.

“Especially the improving domestic fundamentals in Europe are helping to offset the drag from weakness in emerging markets,” said Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam. “That is keeping the economy on track for growth.”

Nonetheless, the European Central Bank has held out the prospect of more stimulus. After six months of quantitative easing, policy makers cut their growth and inflation forecasts through 2017 earlier in September.

The Commission’s report showed industrial confidence in the region increased to minus 2.2 from minus 3.7 in August as production expectations jumped. Sentiment in the services sector rose to 12.4 from 10.1 on prospects of improving demand in the coming months.

ECB President Mario Draghi said this month that the central bank is ready to expand its quantitative-easing program if a decline in oil prices and a slowdown in emerging markets were to worsen the inflation outlook. Core inflation slowed to 0.9 percent in August from 1 percent in July.

Prices in the euro area have been almost stagnant since the ECB started its 1.1 trillion-euro ($1.2 trillion) QE program in March. The inflation rate rose to 0.3 percent in May before slowing again in the following months. Data scheduled to be published on Wednesday are likely to show a rate of zero for September, according to the median estimate in a Bloomberg survey, with predictions ranging from minus 0.2 percent to 0.3 percent.

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