Eurozone Consumer Sentiment Hits 16-Year High

Consumers in the 19 countries that use the euro are more optimistic about their prospects than at any time since the currency was in its infancy, an indication that the economy may be on course for its strongest year since the global financial crisis.

The European Commission on Thursday said its monthly measure of sentiment rose to minus 1.2 in September from minus 1.5 in August, reaching its highest level since April 2001, two years after the euro was launched.

The improvement in confidence suggests consumers will continue to spend freely, providing support to an economic recovery that has been surprisingly strong in the year to date.

The rise in confidence likely reflects a steady fall in the unemployment rate, as well as the first hints of a pickup in wages. Figures released last week showed pay during the three months through June was 2% higher than in the same period a year earlier, the largest increase since the first quarter of 2015 and up from 1.3% in the previous three-month period.

However, the annual rate of inflation was 1.5% in August, well short of the European Central Bank’s target of just under 2%, and there are few signs that goal will be reached quickly.

For the ECB, the euphoric consumer is another sign that cautious increases in upward price pressures are likely to continue,” said Bert Colijn, an economist at ING Bank. “But consumer expectations of price trends have been falling since January, indicating that consumers are not expecting the Goldilocks economy to end anytime soon.”

The strengthening of sentiment also suggests consumers are undaunted by indications that the ECB is preparing to wind down some of the stimulus measures it has launched since mid-2014.

A pickup in consumer spending has been a key driver of the eurozone’s acceleration this year. Household purchases rose 0.5% in the second quarter, having increased 0.4% in the first. Although higher spending by businesses and governments have also been important, the recovery is unlikely to remain robust without acquisitive households.

The Organization for Economic Cooperation and Development on Wednesday raised its growth forecasts for the eurozone economy, and now expects output to rise 2.1% this year and 1.9% in 2018, having previously projected expansions of 1.8% in each year.

For this year, its forecast is slightly below the 2.2% expected by the ECB’s economists. If they prove to be right, it would be the eurozone’s fastest growth since 2007.
Source: Dow Jones