Bullish industry lifts eurozone confidence

Bullish industry lifts eurozone confidence
By Stanley Pignal in Brussels
Copyright The Financial Times Limited 2009
Published: October 29 2009 12:01 | Last updated: October 29 2009 14:33
http://www.ft.com/cms/s/0/4676a7bc-c480-11de-912e-00144feab49a.html


Eurozone economic confidence rose for the seventh consecutive month, beating market expectations and rising to its highest level in more than a year.

The European Commission’s “economic sentiment” indicator jumped from 82.8 in September to 86.2 this month, an unexpectedly large increase after sluggish growth last month.

The indicator remains below long-term averages but has now surged by 22 points since its March trough, the largest half-year rise since the series began in 1985.

Most eurozone states contributed to the improvement, notably Italy (up 3.8 per cent), Germany (3.4 per cent) and France (3 per cent). Separately, the UK rose 3.2 per cent.

The bulk of the improvement came from bullish sentiment in industry, with production expectations much higher than in previous months. Factory utilisation rates, which had declined for six consecutive quarters, were slightly higher.

Consumer confidence also improved, albeit more modestly, as worries about future employment prospects remained.

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Martin van Vliet, analyst at ING, commented: “All in all, despite the strong further improvement in economic sentiment, it remains well below it long-term average [of 100], which also happened to be the level seen at the onset of the ECB’s previous rate hiking cycle in December 2005.”

A separate EU survey pointed to a continuing increase in households’ saving rates and a continuing decline in investment rates for both households and businesses in the second quarter.

Eurozone households are now saving 16.5 per cent of their disposable income, the highest figure in more than a decade.

A survey of eurozone retailers also pointed to a rosier economic outlook, outlining flat like-for-like store sales compared with September.

The month-on-month purchasing managers’ index rose from 48.6 to 50.0 in October – the “no change” mark – breaking 16 months of uninterrupted falls. However, year-on-year expectations remain well below long-term trends.

Chris Williamson, chief economist at Markit, which compiled the survey, said: “The October retail PMI points to a stabilisation of euro area retail sales. But this masks very divergent patterns within the primary member countries, as robust growth in France contrasted with falling sales in Germany and Italy.

“Price trends also varied markedly, with record price discounting by wholesalers pointing to a heightened risk of deflation in Germany, while accelerating growth of prices was evident in France.”