Home > World News > Confidence in Europe Rises More Than Forecast on Stability Signs: Economy

Confidence in Europe Rises More Than Forecast on Stability Signs: Economy

European Commission

European Commission (Photo credit: tiseb)

Economic confidence in the euro area improved more than forecast in February, adding to signs the economy is stabilizing after a fourth-quarter contraction.

An index of executive and consumer sentiment in the 17- nation euro area rose for a second month, increasing to 94.4 from 93.4 in January, the European Commission in Brussels said today. Economists had forecast a gain to 94, the median of 31 estimates in a Bloomberg News survey showed.

Germany’s economy, Europe’s largest, has helped soften the impact of tougher austerity measures across the region as companies boost output and hiring to meet export demand. German business confidence rose more than economists forecast to a seven-month high in February and investors became more optimistic. European Central Bank President Mario Draghi has said that while some euro-area nations may see a “mild” recession, the overall situation “seems to be stabilizing.”

Today’s report suggests that “the euro zone is past the worst,” said Howard Archer, chief European economist at IHS Global Insight in London. “Even so, sentiment is still at a pretty low level and the euro zone is far from out of the economic woods.”

The euro was little changed after the report, trading at $1.3441 at 11:11 a.m. in Frankfurt, up 0.3 percent on the day. The Stoxx Europe 600 Index (SXXP) rose 0.2 percent.

German Unemployment

Germany’s expansion may help temper a slump in the euro area this year, according to the commission. German gross domestic product may rise 0.6 percent in 2012, while the economies of Italy, Spain, the Netherlands, Belgium and Greece are seen shrinking. French GDP may increase 0.4 percent, it said on Feb. 23.

German consumer confidence will increase to a 12-month high in March, helped by declining unemployment, GfK SE (GFK) said today. German unemployment probably fell for a fourth month in February, a Bloomberg survey shows. The Federal Labor Agency in Nuremberg will release the report tomorrow.

The uptick in European confidence echoed encouraging economic news from Japan, where retail sales exceeded economists’ forecasts in January, signaling a recovery in consumer spending will help the world’s third-largest economy return to growth this quarter.

‘Unusual Surge’

Sales rose 1.9 percent from a year earlier, after a 2.5 percent increase in December, the Trade Ministry said in Tokyo today. The median forecast of 15 economists surveyed by Bloomberg News was for a 0.1 percent decline. Car sales jumped 24 percent, the most in 22 years, after the government re- introduced a subsidy for buyers of energy-efficient cars.

In the U.S., orders for durable goods probably declined in January for the first time in four months as aircraft demand slowed, economists said before a government report today. Bookings for goods meant to last at least three years fell 1 percent after a 3 percent increase the prior month, according to the median forecast of economists surveyed by Bloomberg News.

A gauge of sentiment among European manufacturers increased to minus 5.8 in February from minus 7 in the previous month, today’s report showed. That’s the highest since August. An indicator of services confidence slipped to minus 0.9 from minus 0.7, while a gauge of consumer sentiment rose to minus 20.3 from minus 20.7. Indicators of retail trade and construction also improved.

‘Danger Zone’

Still, the region may struggle to gather strength after the economy shrank 0.3 percent in the fourth quarter. Manufacturing output dropped more than economists estimated in February and services industries failed to expand. Euro-region unemployment probably held at 10.4 percent in January, the highest in more than a decade, according to a Bloomberg survey.

The world economy is “not out of the danger zone” amid fragile financial systems, high public and private debt and rising oil prices, International Monetary Fund Managing Director Christine Lagarde said after a G-20 meeting last weekend.

Some companies have relied on faster-growing markets to bolster sales. Hermes International (RMS) SCA, the French maker of Birkin bags, on Feb. 9 reported full-year sales that beat its own forecast amid demand in the Americas and most parts of Asia. BASF SE (BAS), the world’s biggest chemical maker, on Feb. 24 predicted its run of record earnings to extend to a third year after emerging markets in Asia helped boost sales.

ECB Bond Purchases

A gauge of euro-region manufacturers’ production expectations rose to 2.9 from 1.9 in January and an indicator of order books increased to minus 14.2 from minus 16.4. At the same time, manufacturers grew more pessimistic about export orders and employment conditions, today’s report showed.

The ECB, which has purchased government bonds and provided banks with unlimited cash, will publish its latest economic projections on March 8. The central bank earlier this month kept borrowing costs at 1 percent, matching a record low.

“We can see a tentative stabilization at low levels of activity but also with some signs, the very first signs of some improvement here and there,” Draghi said. “That’s for the average of the euro area. In some countries there will be a mild or more-than-mild recession.”

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