Eurozone economic confidence rebounds

Eurozone economic confidence rebounds
By Ralph Atkins in Frankfurt
Copyright The Financial Times Limited 2009
Published: June 29 2009 12:29 | Last updated: June 29 2009 12:29
http://www.ft.com/cms/s/0/dcd6e6c2-649a-11de-a13f-00144feabdc0.html


Eurozone economic confidence recovered more than expected this month, even as idle capacity in the region’s industrial sector hit a record high, according to a European Commission survey.

In the latest sign that the pace of economic contraction has decelerated significantly, the Commission reported its eurozone “economic sentiment indicator” rose by 3.1 points to 73.3 in June, the highest since last November. Optimism rose among consumers, in the service sector and to a lesser extent in industry, it said.

The latest rise was the third consecutive increase from the record low reached in March, but the Commission pointed out that the indicator remained below the level reached at the end of the last trough in late 1992. “A sustained return to positive growth remains a distant prospect in the eurozone,” said Martin van Vliet at ING.

Such confidence surveys are regarded as good indicators of likely trends in economic activity and economists said the latest reading pointed to a second quarter contraction in eurozone gross domestic product of about 0.5 per cent. That would follow contractions of 1.8 per cent and 2.5 per cent reported in the fourth quarter of 2008 and in the first three months of this year.

However evidence of a sustained recovery has yet to feed through convincingly into “hard” data, for instance for eurozone industrial production, raising questions about the predictive power of such surveys.

Details of the Commission survey showed the deep scars left by the worst recession to hit continental Europe since the second world war. Industry has been especially badly hit by the slump in global demand, and the survey showed the rate of capacity utilisation in eurozone manufacturing in the three months to June was the lowest began since the survey started in 1990.

The estimated number of months’ production assured by orders on hand in manufacturing also fell further, to just 2.8 in the second quarter, from 3 in the first three months of the year. However, that was still higher than the record low of 2.6 reported in the third quarter of 1996.

At the same time, the survey showed consumers increasingly seeing prices falling rather than rising. The indicator showing consumers’ expectations for prices in the next 12 months fell to a record low in June. Eurozone inflation data on Tuesday are expected to show the annual inflation rate turning negative for the first time.