Monday, March 29, 2010

European Economic Confidence Rises

European Economic Confidence Rises More Than Forecast (Update3)

By Emma Ross-Thomas

March 29 (Bloomberg) -- European confidence in the economic outlook improved to the highest in almost two years in March, beating economists’ forecasts and signaling the recovery is gathering strength as a weaker euro helps exporters.

An index of executive and consumer sentiment in the 16 nations using the euro rose to 97.7 from 95.9 in February, the European Commission in Brussels said today. That was the highest since May 2008 and topped the median estimate of economists in a Bloomberg News survey.

The euro region’s recovery is gaining momentum after coming to a near-halt in the fourth quarter as companies boost output to meet export orders. Europe’s services and manufacturing industries expanded at the fastest pace in 2 1/2 years in March and economic confidence is now at the highest since four months before the collapse of Lehman Brothers Holdings Inc. The International Monetary Fund said on March 22 that it expects the global economy to “bounce back” in 2010.

“The latest survey evidence provides encouragement that the recovery has not stalled,” said Jennifer McKeown, senior European economist at Capital Economics in London. The report “still points to pretty modest” economic growth of below 1 percent this year, she said.

The euro has dropped 7.6 percent against the dollar in the past six months, helping exporters by making euro-area goods more competitive abroad. The European currency traded at $1.3481 at 12:48 p.m. in London, little changed on the confidence data and down from $1.4587 on Sept. 29. The currency has been pushed lower partly on concern that the Greek government won’t be able to tame the region’s largest budget deficit.

Asian Economies

Asian economies are leading a global recovery from the worst slump since World War II. The economy of the “world’s most dynamic region” including China will expand around 8.5 percent in 2010, IMF First Deputy Managing Director John Lipsky said on March 22. China, the world’s fastest-growing major economy, was the only one of the euro area’s main trading partners to boost purchases of goods from the region last year.

“The recovery in the euro zone is still export-led,” said Martin van Vliet, senior economist at ING Bank in Amsterdam. “It’s still too early to suggest the euro weakness is helping, but it’s the silver lining of the sovereign debt turmoil in Europe.”

Bayerische Motoren Werke AG, the world’s biggest maker of luxury vehicles, said on March 17 that deliveries this year will increase with sales in China projected to show a “strong double-digit” percentage gain.

Order Books

As the global economy returns to growth, exporters’ outlook has strengthened. A measure of euro-area manufacturers’ export order books improved to minus 37 in March, the highest since November 2008, from minus 42 in February, today’s report showed. The same measure for Germany, Europe’s biggest economy, improved to minus 34 from minus 40 in February.

The German economy also saw the largest monthly increase in the overall sentiment index, the commission said. In Greece, where the government is raising taxes and cutting public-sector wages to reduce a record budget gap, the confidence index declined to 69.6 from 72.4. Greece’s economy may shrink 2 percent this year, as austerity measures take hold, the Bank of Greece said on March 22.

Sentiment also deteriorated in Italy, Finland and Cyprus, and consumers became more pessimistic in Spain and Portugal. Spain’s economy is set to contract 0.6 percent this year, compared with an expansion of 1 percent in the euro area, according to IMF forecasts published on Jan. 26.

‘Two-Speed Economy’

“The breakdown still paints a two-speed economy: manufacturing is leading the way supported by the global recovery, while prospects for domestic demand are less bright,” said Luigi Speranza, an economist at BNP Paribas SA in London. “Germany, the best-suited economy to benefit from external growth, continues to outperform other economies, while Greece, Portugal and Spain are lagging behind.”

Households’ inflation expectations increased, the report showed, as a gauge of consumers’ price expectations over the next 12 months rose to a 13-month high.

Consumer prices probably rose 1.1 percent from a year earlier in March, according to a Bloomberg survey of 35 economists. That would be the fastest euro-area inflation in more than a year. The price data will be released on March 31.

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