Euro-Area Economic Confidence Climbs Amid Recession

Economic confidence in the euro area increased in May, adding to signs the region is beginning to emerge from the longest recession in the single-currency era.

An index of executive and consumer sentiment rose to 89.4 from 88.6 in April, the European Commission in Brussels said today. That’s in line with the median estimate in a Bloomberg News survey of 33 economists.

“The survey is still at levels consistent with a continued contraction in the euro-area economy, and therefore a continued recession for the time being,” Philip Shaw, chief economist at Investec Securities in London, said by telephone. “The most encouraging number is the consumer confidence indicator, which has jumped a little bit more quickly than the rest.”

The 17-nation economy’s contraction has left the European Central Bank to try to mitigate the damage by cutting interest rates and exploring unconventional ways of channeling money to needy companies, especially in the south. The ECB this month cut its benchmark rate to a record low of 0.5 percent.

“Our measures gave breathing space from markets driven by panic, which were forcing the economy into a position where inappropriately high interest rates would make default a self-fulfilling prophecy,” ECB President Mario Draghi said earlier this month. “Today we are seeing some encouraging signs of tangible improvements in financial conditions. Spreads in sovereign and corporate debt markets have narrowed considerably.”

Record Recession

The euro area’s 18-month recession will end in the second quarter, as the economy stagnates before returning to growth in the following three months, according to a separate Bloomberg survey. The economy contracted 0.2 percent in the first quarter.

A gauge of sentiment among European manufacturers increased to minus 13 from minus 13.8 in April, today’s report showed. An indicator of services confidence climbed to minus 9.3 from minus 11.1, while consumer confidence improved to minus 21.9 from minus 22.3.

The euro extended gains against the dollar after the survey results were released, trading at $1.2965 at 1:31 p.m. in Brussels, up 0.2 percent on the day.

Spain’s recession eased in the first quarter as domestic demand stabilized while exports, which the government says will drive the recovery of the euro-area’s fourth-largest economy, fell at the fastest pace in a year, a report today showed.

Labor Market

In the U.K., house prices increased the most in 18 months on an annual basis in May as the recovery in the market for residential property gained momentum, Nationwide Building Society said today.

Switzerland’s economy climbed 0.6 percent in the first quarter from the end of December, beating a median estimate of 0.2 percent in a Bloomberg News survey, with consumer spending helping it to perform better than the neighboring euro area.

The encouraging confidence data from Europe followed a May 28 report in the U.S. that showed consumer confidence in the world’s largest economy climbed in May to the highest level in more than five years as views on the economy and labor market improved.

In China, the second-largest economy, Premier Li Keqiang told German business leaders this week that his country is confronted by “huge challenges” as it seeks 7 percent annual growth this decade, down from more than 10 percent in the previous 10 years.

‘Low Level’

Today’s economic-confidence report followed a May 16 trade report that showed euro-area exports rose rose 2.8 percent in March and the trade surplus widened to 18.7 billion euros ($24 billion). European Union car sales rose in April for the first time since September 2011.

PSA Peugeot Citroen, Europe’s second-biggest carmaker, said demand for new vehicles in the region has started to stabilize at a “very low level,” after European Union car sales rose 1.8 percent in April, the first gain since September 2011.

Even so, the auto market is near a two-decade low. Maxime Picat, head of the manufacturer’s Peugeot brand, said May 22 that industry sales in Europe will fall 5 percent this year in the sixth consecutive annual decline, and that it’s too early to predict a rebound.

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