Euro-Area Economic Confidence Surges to Highest in 17 Years

Euro-area economic confidence surged to its highest in almost 17 years, reflecting an improved outlook for a region that not long ago was blighted by record joblessness and a double-dip recession.

The index of industry and consumer sentiment rose to 114 in October from a revised 113.1 the previous month, the European Commission in Brussels said on Monday. That’s the gauge’s fifth consecutive monthly increase and the strongest reading since January 2001. It compares with a median estimate of 113.3 in a Bloomberg survey.

After the past decade dealt the euro area two prolonged economic slumps, a sovereign debt crisis and an almost-exit of Greece from the single currency, the 19-nation region is experiencing a growth revival. Unemployment is declining and consumer spending, as well as corporate earnings and investment, are on the rise. Better performances in countries from the U.S. and Canada to Russia and India have also buoyed that upswing.

“In big picture terms, we’re still in a period of above-trend growth,” said Nick Kounis, an economist at ABN Amro Bank NV in Amsterdam. “One of the things which has changed for the better in the last, say, six to nine months has been a marked improvement in the global growth backdrop, and that has been very important for Europe.”

The export-oriented manufacturing sector has been a beneficiary of the turnaround, with a Purchasing Managers’ Index gaining in recent months. Companies in that branch took on staff at the fastest pace on record in October.

Sentiment increased across all sectors, according to the European Commission.

The euro was little changed after the report and traded at $1.1633 at 11:26 a.m. Frankfurt time.

Data on Tuesday are expected to show the bloc’s economy expanded for an 18th quarter in the three months through September. The unemployment rate is forecast to have fallen to 9 percent last month, versus a high of more than 12 percent back in 2013.

Germany, the region’s largest economy, is headed for its fastest annual expansion since 2011, and the better local and international dynamics have been reflected in company earnings. Deutsche Lufthansa AG attributed about a third of the increase in its operating profit to the sound economic situation at home and in Europe, while chemical maker BASF SE cited global growth as a reason for raising its outlook.

As for Spain, which was particularly buffeted by job losses, unemployment fell to a nine-year low in the third quarter amid economic growth of 0.8 percent, providing some good news for the government as it tries to get a grip on the political crisis in Catalonia. Still, Economy Minister Luis de Guindos said he’s anticipating a slowdown in the region that may have ripple effects for the broader Spanish economy.

Taking Note

European Central Bank President Mario Draghi took note of the euro area’s improved prospects last week, saying the region was “doing pretty well.”

Yet, faster momentum has been slow to push up domestic cost pressures, and Draghi stressed that a “prudent” as well as “patient and persistent” approach toward exiting the quantitative-easing program is warranted so as not to undermine the recovery.

With inflation still below its goal of just under 2 percent, the ECB will continue to buy public and private debt through September 2018, albeit at half the current pace of 60 billion euros ($70 billion), it announced on Oct. 26.

“Growth is growing and momentum is also growing and the labor market and everything is doing well,” Draghi told reporters after the decision. While data constituted grounds for confidence about the region’s prospects, “this confidence is also tempered by the fact that we know that all this process, it still relies very much on our monetary-policy support,” he said.
Source: Bloomberg