Eurozone economic confidence rebounds

Eurozone economic confidence rebounds
By Ralph Atkins in Frankfurt
Copyright The Financial Times Limited 2009
Published: April 29 2009 11:04 | Last updated: April 29 2009 11:04
http://www.ft.com/cms/s/0/305f3ed8-349f-11de-940a-00144feabdc0.html


A larger-than-expected rebound in eurozone economic confidence has added to evidence that the worst of continental Europe’s recession is over, even though its effects continue to hit consumers and businesses.

The European Commission reported its “economic sentiment” index for the 16-country region had risen for the first time in almost a year, from 64.7 in March to 67.2 this month – the highest since December.

The eurozone recession – the worst in continental Europe since the second world war – is thought to have intensified in the first quarter of this year. But the latest data suggested the second quarter will see a slower pace of decline and may raise hopes of a return to growth might be on the horizon.

Separately, the German VDMA engineering association offered hope that the worst is also over for the country’s export-dependent industry. Although it reported that orders for machinery and equipment last month were 35 per cent lower than a year before, it said export orders had risen a little compared with the period between December to February.

However the VDMA warned the volatility of monthly data meant the latest data were “no reason to sound the all clear”.

Meanwhile, economists warn that the impact of the global slowdown on eurozone unemployment has yet to feed through – especially in Germany.

The eurozone economy was “likely to shrink further over the rest of 2009” and with domestic demand in the area likely to remain weak, “any resumption in growth may have to wait for world demand to recover,” said Colin Ellis, European economist at Daiwa Securities SMBC.

Separate data published by the European Central Bank showed that eurozone credit growth has been thrown into reverse with consumers and businesses repaying loans last month.

That almost certainly reflected the sharp fall in demand for credit by corporations and households as a result of the recession. But constraints on the supply of credit also appear to be biting.

The credit turnaround will increase the pressure on the ECB to intensify its efforts to combat the downturn.

According to a separate “bank lending survey” released by the ECB banks reported a further tightening of credit standards in the first three months in the year. However the ECB noted that the pace of tightening had slowed compared with at the end of last year, which is said “could point to some stabilisation of the current tightening cycle”.

In March, non-financial corporations repaid loans of €12bn – the second consecutive monthly decline, according to the ECB data. Compared with a year before, loans to business were 6.3 per cent higher – down from an annual growth rate of 7.7 per cent in February. Before the intensification of the global financial crisis late last year, eurozone loans to business had been expanding at double-digit growth rates.

Households, meanwhile, repaid €5bn of loans last month, but the deceleration in annual growth rates was more dramatic than for businesses. Loans to households in March were just 0.4 per cent higher than a year before. Lending for house purchases was just 0.1 per cent higher.