Eurozone confidence reaches four-year high

Confidence in the eurozone’s economy edged up to a new four-year high in August, as rising domestic demand marginally outweighed a worsening view of export prospects and the mood brightened, particularly in France and Spain.

The European Commission’s monthly economic sentiment indicator, published yesterday, rose to 104.2 in August, from 104.0 in July, against expectations in a Reuters poll of a slight dip to 103.8.

“The tentative increase in euro-area sentiment resulted from worsened confidence in industry being offset by improvements in the other business sectors (construction, services and, particularly, retail trade) and marginally higher consumer confidence,” the Commission said in a statement.

ING’s Bert Colijn said the increase showed the eurozone economy was resilient, with little impact yet from China’s slowdown.

The economy’s expansion was above the long-term average but there was no sign growth would accelerate.

“The outlook indeed remains uncertain for eurozone industry as the recent appreciation of the euro and continued concern about Chinese economic growth will likely have an impact on the sector’s output in the months ahead,” he said.

Among the larger euro area economies, overall economic sentiment increased in France (+0.9) and Spain (+1.7), but declined in Germany (-0.2), Italy (-0.6) and the Netherlands (-0.3). Sentiment in Greece, which secured a third bailout this month, plunged to its lowest level in more than six years.

The Commission’s business climate indicator dipped to 0.21 this month from 0.41 in July.

Arguably of most importance for the European Central Bank (ECB), which launched a money-printing programme this year, the Commission said consumers’ inflation expectations slipped to a four-month low of 3.1.

The ECB is widely expected to announce downwardly revised inflation forecasts after a governing council meeting next week, and some economists are expecting further steps to push inflation towards the ECB’s target of just below 2%.

In July, the rate was 0.2%.

Meanwhile, German consumer prices remained ultra low in August, data from states around the country suggested yesterday, putting more pressure on the ECB to consider additional stimulus measures as falling oil prices and a slowdown in China curb inflation.

ING economist Carsten Brzeski said he would not have been surprised if inflation had fallen to zero or even slipped into negative territory given the sharp fall in energy prices, but noted this could still pass through into next month’s data.

Nonetheless, the subdued reading is a headache for the ECB, which has been trying to push inflation in the eurozone back towards its target of just below 2% over the medium term via bond-buying, or quantitative easing.


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