Surprise rise in euro zone confidence

MADRID • Economic confidence in the euro zone unexpectedly rose in December in a sign that new stimulus from the European Central Bank (ECB) may be providing impetus to the region's fragile recovery.

An index of executive and consumer confidence jumped to 106.8 from 106.1 in November, the European Commission in Brussels said yesterday. That is the highest since April 2011 and compares to a median estimate for a drop to 106 in a Bloomberg survey of economists.

Unemployment fell to 10.5 per cent in November, according to a separate report from Eurostat.

The pick-up in confidence gives the ECB some respite after investors expressed disappointment over its latest stimulus effort to nurture growth and return inflation towards 2 per cent speedily.

While surveys of purchasing managers point to a slowly strengthening recovery, weakening global trade is threatening exports.

"The recovery is continuing, but underlying inflationary pressures remain very subdued, coupled with low oil prices and a stronger euro," said ABN Amro Bank senior economist Aline Schuiling in Amsterdam. "The problem for the ECB is that inflation expectations become dislodged and markets begin to lose patience. Hence we expect the ECB to announce further stimulus in March to tame that risk."

The euro was little changed after the report and traded at US$1.0847 at 11.49 am Frankfurt time.

A gauge for sentiment in industry rose to minus 2 in November from minus 3.2, and a measure for confidence in services increased to 13.1 from 12.8, the Commission said. Sentiment among consumers and builders also improved.

Joblessness in the region fell to the lowest in four years in November, ranging from 4.5 per cent in Germany to 21.4 per cent in Spain, the European Union's statistics office said. Youth unemployment in the euro zone stood at 22.5 per cent.

Retail sales fell 0.3 per cent in November, marking the third consecutive decline, according to a separate report. Euro zone inflation remained at 0.2 per cent in December.

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A version of this article appeared in the print edition of The Straits Times on January 08, 2016, with the headline 'Surprise rise in euro zone confidence'. Print Edition | Subscribe