Euro Zone Crisis

Hint of hope for euro zone as consumer sentiment improves

PUBLISHED : Friday, 28 June, 2013, 12:00am
UPDATED : Friday, 28 June, 2013, 4:30am

Economic confidence in the euro zone improved this month more than economists had forecast, adding to signs the 17-nation economy is starting to recover from the longest recession since the debut of the euro.

An index of executive and consumer sentiment rose to 91.3 from 89.5 last month, the European Commission in Brussels said yesterday. Economists had estimated a median of 90.4 in a survey.

European Central Bank president Mario Draghi said on Wednesday that policymakers would maintain a loose monetary stance for as long as needed.

Financial markets tumbled in the past week amid concern stimulus would be withdrawn, after US Federal Reserve chairman Ben Bernanke said last week policymakers might start slowing their pace of bond buying.

Yesterday's report "supports hopes that euro zone economic activity may have finally stopped contracting in the second quarter," said Howard Archer, chief economist for Britain and Europe at IHS Global Insight in London.

"If June's improvement in confidence can be extended, businesses will at least pare back their job cutting and consumers will gradually lift their spending."

The euro-zone economy shrank 0.2 per cent in the first quarter, a record sixth consecutive contraction.

The recession is forecast to end this quarter as the economy stagnates before returning to growth in the following three months, a separate survey of economists found.

The ECB's monetary policy "will stay accommodative for the foreseeable future", Draghi said. "We have an open mind about all other possible instruments that we may consider proper to adopt." An exit is "very distant", he said.

Separate data yesterday showed that German unemployment unexpectedly declined this month amid signs that a recovery in Europe's biggest economy is on track even as the euro zone struggles to emerge from its recession. The number of people out of work in Germany dropped a seasonally adjusted 12,000 to 2.94 million, the Federal Labour Agency said.

In the euro zone, the jobless rate increased to a record 12.2 per cent in April, the latest data available says. Euro zone unemployment figures for last month will be published on Monday.

"The euro area economy has shown signs that it should stabilise at some stage in the second half of the year, but an upturn does not seem imminent," economists including Philip Shaw at Investec in London said in a note.

"Of course, euro zone markets have not been immune to global events."

A gauge of sentiment among European manufacturers increased to minus 11.2 from minus 13, yesterday's report showed. An indicator of confidence in the service sector fell to minus 9.5 from minus 9.2, while consumer confidence gained to minus 18.8 from minus 21.9.