Eurozone consumers continued to gain confidence in October, which should reassure European Central Bank policy makers that the economic recovery is set to remain robust as they prepare to take a key decision on the future of their bond-buying program.
On Monday, the European Commission said its monthly measure of sentiment rose to minus 1.0 from minus 1.2 in September, its highest level since April 2001.
The steady rise in confidence over the last 12 months has been driven by greater optimism about the outlook for the eurozone economy, which has experienced a tumultuous decade as first the global financial crisis and then the currency area’s debt troubles caused two periods of contraction.
The eurozone economy has been growing since mid-2013 and the pace of its recovery has picked up in 2017. To policy makers at the eurozone’s central bank, that suggests they can safely withdraw some of the stimulus they have been providing over recent years. The ECB’s 25-member governing council is expected to announce Thursday that it will reduce the amount of bonds it buys from January.
“With the recovery well on track, a reduction of the ECB’s monthly asset purchases seems to be a foregone conclusion,” said Oliver Rakau, an analyst at Oxford Economics.
ECB watchers believe that will mark the start of a process that will bring an end to bond purchases in 2018 and a rise in the key interest rate by the end of this decade. Oxford Economics expects the first rise in the deposit rate–which stands at minus 0.4%–at the start of 2019.
The strengthening of sentiment suggests consumers have taken that prospect in their stride and are confident the recovery can survive a reduction in support from the ECB. That confidence in turn aids the recovery, since more upbeat consumers tend to spend more freely.
As in previous months, eurozone consumers appear to be untroubled by higher levels of political uncertainty. German elections held in September saw the nationalist Alternative for Germany party win nearly 13% of the vote and a place in parliament for the first time. In Spain, leaders of wealthy Catalonia are pushing for independence.
Source: Dow Jones