Bloomberg News

Euro-Area Economic Confidence Seen Up to 17-Month High: Economy

August 26, 2013

Euro-Area Economic Confidence Seen Up to 17-Month High

Jobseekers wait to see advisors inside a Labor Force Employment Organisation (OAED) job center in Athens. Euro-area unemployment will peak at 12.3 percent in the third quarter and remain at that level next year before falling to an average of 12 percent in 2015, according to a Bloomberg monthly survey of economists. Photographer: Angelos Tzortzinis/Bloomberg

Economic confidence in the euro area probably rose to the highest level in 17 months in August, adding to signs that the currency bloc’s recovery from a record-long recession is gathering pace.

An index of sentiment rose to 93.8 from 92.5 in the previous month, according to the median of 26 economists’ estimates in a Bloomberg News survey. The European Commission said Aug. 23 that consumer sentiment in the 17-nation euro zone increased to a 25-month high in August. Unemployment probably held at a record 12.1 percent in July, a separate Bloomberg survey shows.

Increased momentum in the region’s economy since it returned to growth in the second quarter has boosted European equities, with the Stoxx Europe 600 index up 11 percent in the last two months, and companies from Germany to Ireland have raised their business forecasts. Yet Europe continues to struggle with the legacy of a debt crisis now in its fourth year, including a jobless rate that’s forecast to stay above 12 percent through 2015.

“Things are maybe not quite as doom and gloom as people have thought for a long time,” said Christoph von Reiche, the head of Goldman Sachs Asset Management in Germany. “Even though we face enormous issues in Europe, it feels like progress has been made.”

The euro traded little changed at $1.3369 at 9:08 a.m. in Frankfurt. The Stoxx Europe 600 was little changed at 304.79.

Factory Output

The euro-area economy expanded 0.3 percent in the three months to June, led by Germany and France, ending a run of six quarterly contractions. Adding to the indications of recovery, services and manufacturing output expanded more than economists forecast in August, data from London-based Markit Economics show.

Hamburger Hafen & Logistik AG, the handler of about 80 percent of containers at Hamburg’s port, raised its 2013 volume forecast on Aug. 14 after Asian trade gathered pace and Baltic Sea traffic amplified.

In Ireland, Kingspan Group Plc (KSP), a maker of building insulation panels, said acquisitions boosted first-half results and the company should “deliver an improved year-on-year result in the second half.”

European Central Bank President Mario Draghi said this month that while risks to the economy continue to be on the downside, he expects a gradual recovery in the second half of the year. The Frankfurt-based ECB said in July it would keep interest rates low for an extended period after it cut its benchmark rate to a record low of 0.5 percent in May.

Export Growth

“The actual figures are quite impressive,” Draghi said on Aug. 1. “There have been strong increases in exports, not only in Germany, but also in Spain and Italy, which shows that something has happened to reform and enhance competitiveness.”

Consumer-price growth probably slowed to 1.4 percent in August after a 1.6 percent gain a month earlier, another Bloomberg survey shows. Inflation (ECCPEST) has been below the ECB’s 2 percent ceiling since February.

ECB Governing Council member Ewald Nowotny said last week that the recent “stream of good news” from the euro-area economy has removed any need to cut interest rates. At the same time, he ruled out an early monetary tightening, saying in Jackson Hole, Wyoming, that “the most recent developments will have no immediate effects” on ECB policy.

That contrasts with ECB Governing Council Member Panicos Demetriades, who said on Aug. 24 that a rate cut “is still on the cards.”

Record Unemployment

With the economy improving, policy makers may face a debate about higher rates sooner than anticipated. The ECB holds its next policy meeting on Sept. 5.

“The ECB has announced that it will raise interest rates once the economy improves,” German Finance Minister Wolfgang Schaeuble told Handelsblatt last week. “That’s good.”

The European Commission publishes its economic-confidence report on Aug. 30. The European Union’s statistics office releases unemployment and inflation data the same day.

While the statistical evidence of recovery mounts, euro-area unemployment has proven resistant to the improving trend, and some companies are still cutting jobs. France and Germany are driving expansion, yet at least four euro countries remain in recessions, including Italy and Spain.

German Jobs

Euro-area unemployment will peak at 12.3 percent in the third quarter and remain at that level next year before falling to an average of 12 percent in 2015, according to a Bloomberg monthly survey of economists. The job market has proven especially tough for people under 25 years of age in the euro zone, with 23.9 percent of them out of work in June, according to Eurostat.

Salzgitter AG (SZG), the German steelmaker that cut its forecast on Aug. 5 amid waning demand in Europe, announced plans on Aug. 14 to shed more than 1,500 jobs as it seeks to save more than 200 million euros.

Michelin & Cie, Europe’s largest tiremaker, said on June 10 that it would end production of heavy-truck tires at a factory southwest of Paris in 2015, costing about 730 of the plant’s 930 employees their jobs.

In contrast to many of its euro partners, Germany’s unemployment rate probably remained close to a two-decade low in August, a Bloomberg survey shows. The Federal Labor Agency in Nuremberg will publish the data on Aug. 29.

A solid job market may help Chancellor Angela Merkel, who seeks a third term as German leader in a Sept. 22 election on the strength of shielding her country from the worst effects of the euro area’s debt crisis.

The euro-area economy “will keep expanding in the second half of the year,” HSBC Holdings Plc European economist Matteo Cominetta said. “I don’t expect a return to faster growth rates above 1 percent any time soon, but at least growth in the euro area will remain steady and recession fears are off the table for now.”

To contact the reporter on this story: Stefan Riecher in Frankfurt at sriecher@bloomberg.net

To contact the editor responsible for this story: Fergal O’Brien at fobrien@bloomberg.net


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