Euro-Area Consumer Confidence Rises to Highest Since 2007

Euro-area consumer confidence increased more than economists forecast in May, as inflation held at less than half the European Central Bank’s target.

An index of household confidence in the euro zone rose to minus 7.1, the highest since October 2007, from minus 8.6 in April, the European Commission in Brussels said in a preliminary report today. That beat the median forecast of minus 8.3 in a Bloomberg News survey of 23 economists.

A majority of economists expect the ECB to ease its monetary policy next month after the euro area posted anemic growth in the first quarter. The inflation rate was 0.7 percent in April and unemployment held close to a record in March.

“Low inflation in recent months has led consumers’ assessment of their financial situation to improve significantly,” said Uwe Duerkop, an economist at Berliner Sparkasse. “Declines in demand in Spain are over and conditions are improving slightly in Italy, supporting the scenario of a recovery in the euro region.”

The fragile outlook is reflected in European car sales, which rose at the slowest pace in five months in April. “The business environment remains volatile and uncertain,” Norbert Reithofer, CEO of Germany-based Bayerische Motoren Werke AG, the world’s biggest maker of luxury cars, said this month.

ECB Executive Board member Yves Mersch this week said that the odds of June action, which could include unconventional measures, have risen “significantly.” The ECB may act next month depending on its staff macroeconomic projections to be released on June 5, according to President Mario Draghi.

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