Economic Confidence Shows Euro-Area Recovery Defies Greek RisksMaria Tadeo
Euro-area economic sentiment rose to the highest level in more than 3 1/2 years, adding to signs that the fragile recovery is stabilizing despite Greece’s struggle to secure funding.
An index of executive and consumer confidence jumped to 103.9 in March from a revised 102.3 a month earlier, the European Commission said Monday. The reading is the strongest since June 2011 and exceeds the median of 30 estimates in a Bloomberg News survey, which was for an increase to 103.
The report follows a string of positive data across the 19-nation bloc that has allowed European Central Bank President Mario Draghi to strike an optimistic tone about the state of the recovery. That’s notwithstanding Greece, which risks running out of cash at any moment as the government remains locked in talks with creditors over measures attached to the country’s bailout loans.
“We have tailwind for the euro-zone economy like rarely before with a combination of cheap oil, a weaker euro and extremely low financing costs,” said Holger Schmieding, chief economist at Berenberg in London. “At this point, even Greek irritations are unlikely to deter economic sentiment.”
The commission report also showed industrial confidence up at minus 2.9 from minus 4.6 in February. Sentiment among consumers increased to minus 3.7 from minus 6.7, and confidence in the services sector rose to 6 from 5.3.
Business activity as measured by a survey of purchasing managers rose to a 46-month high in March coinciding with the start of the ECB’s 1.1 trillion-euro ($1.2 trillion) stimulus package designed to kick-start growth and fend off the threat of deflation. As part of the program, the Frankfurt-based bank has pledged to buy 60 billion euros of assets a month through September next year.
The start of QE has pushed bond yields in the region to record lows and helped drive the euro to its weakest against the dollar since 2003. Last week, the Bank of Spain said a cheaper euro should help Spanish exports gain pace as it upgraded its growth forecast for the year to 2.8 percent from a previous estimate of 2 percent.
In Germany, the region’s powerhouse economy, business confidence rose to the highest level in eight months in March. In France, where the economy has barely grown in three years, Finance Minister Michel Sapin signaled there is scope for an upward revision of a 1 percent growth forecast for this year. In Italy, consumer confidence jumped the most in more than a decade in February even as Prime Minister Matteo Renzi struggles to pass reforms.
“A sustained recovery is taking hold,” Draghi said on March 16. “We can rightly be optimistic about the outlook.”
However, risks remain. Market metrics show Greece is in danger of sinking under the burden of its debt, putting repayments of about 500 billion euros owed to European taxpayers, rescue funds, banks and bondholders in jeopardy. After winning a four-month bailout extension from euro-area finance ministers on Feb. 20, Prime Minister Alexis Tsipras has yet to present a package of economic reforms, including increased tax compliance and cutting red tape for businesses.
“Uncertainty over the future of Greece is having a detrimental impact on confidence,” said Christiane von Berg, an economist at Bayerische Landesbank. “Not much has changed from February’s agreement. Athens and Brussels were confrontational and have yet to meet somewhere in between.”