Euro-Area Confidence Rises as ECB Reviews Asset-Purchase Program

  • Economic sentiment index climbes to 106.5 vs estimated 106.8
  • ECB officials weigh extending QE plan past March 2017

Euro-area economic confidence inched up ahead of a much-anticipated European Central Bank decision that will take place amid signs of brightening prospects for the 19-country region.

An index of executive and consumer sentiment increased to 106.5 in November from a revised 106.4 in October, the European Commission in Brussels said on Tuesday. That compares with a forecast of 106.8 in a Bloomberg survey.

The data comes just as the long-anemic inflation rate in the euro area is showing signs of picking up and growth forecasts are signaling continued growth. Still, ECB President Mario Draghi has cautioned that although there are “encouraging trends” it is premature to be “sanguine” about the outlook, which remains dependent on monetary support. 

“Draghi has hit the nail on the head: We have a moderate recovery, it’s been pretty steady despite market turbulence,” said Alexander Koch, an economist at Raiffeisen Schweiz in Zurich. “But especially in the periphery, save for in Spain, it has not been strong enough to turn around the labor market.”

Eurostat will release October unemployment data on Thursday, preceded by November inflation figures due on Wednesday.

ECB Meeting

ECB officials are considering extending their asset purchase program, due to expire in March. Draghi has ruled out a sudden stop of quantitative easing and reiterated on Monday that the central bank is determined to “preserve the substantial degree of monetary accommodation necessary” to meet its objective of pushing inflation to its target of just-below 2 percent. The rate was 0.5 percent in October.

An announcement could come at the ECB’s Dec. 8 meeting, when new growth and inflation forecasts will be issued.

Sentiment improved among consumers, retailers and builders, as well as in financial services, according to Commission data. Industrial confidence slipped for the first time in three months.

With monetary-policy options stretched after years of unprecedented stimulus, officials have urged lawmakers to undertake structural reforms and use fiscal leeways to bolster the economy. The Organization for Economic and Development on Monday recommended Europe should ease budget rules to foster investment.

A series of national votes in the next 12 months may limit governments’ scope to act, with a fresh wave of populism building on from the U.K.’s vote to leave the European Union and the election of Donald Trump in the U.S. threatening to alter the political landscape and pull the rug out from under the recovery.

ECB officials have acknowledged political risks to the economy. Vice President Vitor Constancio said last week the central bank would “continue to exert its stabilizing role,” should uncertainty cause financial-market turbulence.

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