Economic confidence up for ninth month as eurozone recovery continues

Eurozone economic confidence increased for a ninth month in January, led by the services industry, adding to evidence that the 18-nation currency bloc’s recovery is gaining traction.

An index of executive and consumer sentiment rose to 100.9 from a revised 100.4 in December, the European Commission in Brussels said yesterday. That’s the highest reading since Jul 2011, though it missed the median estimate of 101 in a Bloomberg News survey of 34 economists.

European stocks and bonds have rallied amid signs growth is gradually picking up in the eurozone, with economists estimating a 0.2% expansion in the fourth quarter after 0.1% growth in the previous three months, according to a Bloomberg News survey. Sovereign borrowing costs fell to eurozone records from Greece to Ireland while the Stoxx Europe 600 Index hit a six-year high.

“Growth in the euro area is gaining dynamism but it remains modest,” Ruben Segura-Cayuela, a former Bank of Spain economist who works at Bank of America Merrill Lynch in London, said by telephone. “Growth of 1% in the region this year won’t be enough to address concerns about public finances in some countries and will barely create jobs.”

The commission’s index of confidence in the services industry rose to 2.3 in January, exceeding forecasts, today’s report showed. Consumer confidence improved to minus 11.7 from minus 13.5 in December, and retail confidence rose to minus 3.4 from minus 5.

“Further improvement in overall economic sentiment ties in with other data suggesting that the euro-zone recovery gathered momentum at the turn of the year,” Martin van Vliet, an economist at ING Bank in Amsterdam wrote in a note.

Inflation probably accelerated to 0.9% in January, according to a separate Bloomberg survey of economists. If that forecast is confirmed today, the rate will have been below the ECB’s 2% ceiling for a year. That may help reboot spending as households gain purchasing power.

Still, European Central Bank president Mario Draghi this month strengthened a pledge to keep interest rates low. The economy is still struggling to grow amid subdued prices and the threat of rising market rates as the US Federal Reserve tapers its monetary stimulus. Unemployment is at a record 12.1%.

— Bloomberg