Eurozone economic confidence gets December boost

6th January 2011, Comments 0 comments

Confidence in the eurozone economy rose to the highest level for three years last month, a bright spot in a bad year which the single currency area wants to put behind it, key EU data showed on Thursday.

Regional powerhouses France and Germany carried the stronger-than-expected rise, but in a sign that the euro has yet to shake off its troubles, southern members hit by high debts and public deficits continued to fall back.

"The survey underlines the view that the peripheral economies are set for another very tough year," said Ben May, European economist at market research firm Capital Economics.

The Economic Sentiment Indicator published by the European Commission rose by 1.1 points to 106.2 points across the 16-nation single currency area -- now 17 since Estonia joined on January 1, 2011. It was the highest level since it peaked at 106.5 points in October 2007.

In the wider 27-nation European Union, confidence rose 1.0 point to 106.1 points.

Sentiment in most EU countries improved but confidence fell in Spain and Greece which were forced to implement tough austerity measures to bring down high deficits.

France led the pack with a gain of 2.5 points, followed by 2.4 points in the Netherlands and 1.5 points in Germany. But Spain fell back 0.9 points while Greece retreated by 1.4 points.

"It is notable that there were marked divergences in sentiment between the individual economies, reinforcing the impression of a two-speed eurozone," said Howard Archer, chief European economist at IHS Global Insight.

In another sign of Germany's robust economic health, industrial orders leapt by a surprise 5.2 percent in November from the level in October, according to national data.

The eurozone's debt crisis began last year with a bailout of EUR110 billion ($144 billion) for Greece and was followed by a rescue of EUR67 billion for Ireland in December. Analysts warn that Spain and Portugal may be next in line for help.

The high confidence in the eurozone economy in December was fuelled by strong business sentiment, but consumers were less than buoyant, the European Commission survey showed.

"The data suggest that consumers may have been more spooked by the heightened eurozone sovereign debt crisis than businesses," Archer said.

"It is also likely that consumers are becoming increasingly concerned about the fiscal tightening that will increasingly kick in across the Eurozone during 2011, as well as by higher inflation," he said.

Sentiment in industry rose sharply, by 3.6 points in the EU and 3.3 points in the eurozone, while consumer confidence fell 1.1 points in the EU and 1.6 points in the eurozone.

In another indication of consumer jitters, retail sales in the eurozone dropped by 0.8 percent in November compared to the previous month's level, according to the Eurostat data agency.

© 2011 AFP

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