Euro-Area Confidence Hits Decade High as ECB Debates Exit

  • Sentiment index jumps to 111.1 from 109.2, median est. 109.5
  • ECB President Draghi urges prudence in unwinding stimulus

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Euro-area economic confidence jumped to the highest level in a decade as the European Central Bank edged toward unwinding unprecedented stimulus.

An index of executive and consumer sentiment rose to 111.1 in June from 109.2 in May, the European Commission in Brussels said Thursday. The reading is the strongest since August 2007 and compares with a median estimate of 109.5 in a Bloomberg survey of economists.

The report comes two days after ECB President Mario Draghi confounded investors by arguing that there’s room to adjust stimulus measures as the economy improves, even though he called for prudence and patience amid still-low inflation. A gauge for private-sector activity signaled the euro-area economy recorded its fastest expansion in six years in the second quarter as business confidence in Germany hit a record and consumer sentiment in France surged.

“The data are improving, the recovery is improving -- we see the pieces are falling into place,” said Marco Valli, an economist at UniCredit in Milan. “Price pressure will follow suit, sooner or later. This gives the ECB confidence to start talking about withdrawing accommodation although, especially after the market reaction this week, they will want to be very gradual.”

The Commission’s report showed a broad-based improvement in sentiment.


JuneMay
Industry4.52.8
Services13.412.8
Consumer-1.3-3.3
Retail Trade4.42.0
Construction-3.5-5.6

Industry confidence was fueled by managers’ more positive assessment of their order books and in services, optimism was bolstered by demand expectations. The increase in consumer sentiment reflected a better assessment of economic prospects, future unemployment and savings expectations.

Gauges for Germany, France and the Netherlands rose strongly, the Commission said. A measure for Spain was up slightly, while confidence in Italy remained unchanged.

The breakdown will help policy makers pass judgment over the state of the recovery in the 19-nation region as they prepare to map out an exit from ultra-expansionary measures. Draghi’s argument -- made at the ECB’s equivalent of the U.S. Federal Reserve’s Jackson Hole symposium -- was that a constant policy stance becomes more accommodative as the economy improves and that therefore instruments can be adjusted without tightening conditions.

The Governing Council next meets to set policy on July 20, though most economists see little chance of a substantial change in stance until the following meeting on Sept. 7.

— With assistance by Andre Tartar, and Kristian Siedenburg

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