An index of executive and consumer sentiment in the 16 euro nations rose to 104.1 from 103.2 in September, the European Commission in Brussels said in a statement today. That’s the highest since December 2007 and exceeded economists’ forecast for a reading of 103.5, based on the median of 26 estimates in a Bloomberg News survey.
European manufacturing growth accelerated in October and German business confidence unexpectedly increased. MAN SE, the region’s third-largest truckmaker, today reported third-quarter profit that beat analyst estimates. Nevertheless, the euro- region recovery may weaken as a stronger euro and faltering global demand hurt exports and governments cut spending.
“The unexpected rise in sentiment doesn’t signal a renewed pickup in economic activity,” said Aline Schuiling, an economist at ABN Amro in Amsterdam. We see a “moderate but ongoing expansion after a surprisingly good start to the year.”
The euro was little changed against the dollar after the report and traded at $1.3832 as of 10:40 a.m. in London from $1.3769 yesterday.
Peripherals
A gauge of sentiment among manufacturers rose to 0 in October from minus 2, while services confidence held at 8, today’s report showed. The index of consumer confidence remained at minus 11 and a gauge of sentiment among builders rose to minus 25 from minus 26. Gauges of hiring by manufacturers and services companies both increased.
The report also showed a continued gap between the region’s largest member states and the so-called peripheral nations. Among the largest economies, France had the biggest jump in economic sentiment in October, while German confidence also improved. In Spain and Portugal, economic confidence worsened.
“There is still a stark divergence between sentiment in the core and periphery,” said Jennifer McKeown, an economist at Capital Economics Ltd. in London. “But we fear that sentiment in the core will follow that in the periphery down as fiscal austerity spreads and exporters suffer from weaker global demand.”
Growth Forecast
The euro-region economy may expand 1.7 percent this year after shrinking 4.1 percent in 2009, the International Monetary Fund said on Oct. 6. In Germany, Europe’s largest economy, gross domestic product will probably rise 3.3 percent, it said.
European manufacturers’ capacity utilization rose to 77.6 percent in the fourth quarter from 77.2 percent in the previous three months, the commission said in today’s report. That’s the highest since the fourth quarter of 2008. BASF SE, the world’s largest chemical maker, raised its 2010 earnings outlook yesterday after earlier this month forecasting “good business development” in the fourth quarter.
The European Central Bank said today that net demand for business loans turned positive for the first time in more than two years in the third quarter, led by “increased financing needs for inventories and working capital.”
The ECB on Oct. 7 kept its benchmark interest rate at a record low of 1 percent after last month extending emergency liquidity measures for banks into 2011. It is scheduled to hold its next policy meeting on Nov. 4 in Frankfurt.
“The European economy as a whole is now on a stable path toward recovery,” ECB council member Axel Weber, who also heads Germany’s Bundesbank, said on Oct. 12. “I’m confident that the danger of sliding back into recession is negligible.”
German Boost
The commission’s gauges measuring orders rose to minus 12 this month from minus 16 in September, while gauges of export orders and output expectations also increased, today’s report showed. Among services executives, a gauge of demand expectations for the next three months rose to 11 from 10 and a gauge measuring price expectations also increased.
Germany has fueled the region’s recovery as governments from Spain to Ireland struggle to push down budget deficits. Its economy grew 2.2 percent in the second quarter, more than twice the euro-area average and the fastest in two decades.
While the euro has depreciated 6.1 percent against the dollar over the past year on investor concern about Europe’s debt crisis, a weaker currency has helped boost export growth. L'Oreal SA, the world’s largest cosmetics maker, said on Oct. 21 that third-quarter sales increased 15 percent, more than analysts forecast, partly because of a weaker euro.
The euro has rebounded since hitting a four-year low in June, and is up 1.7 percent over the past month. Companies may also struggle to maintain earnings growth as households restrain spending and the global recovery cools.
Volkswagen AG, Europe’s largest carmaker, said on Oct. 22 that earnings growth will probably weaken in the fourth quarter.
“It’s undoubtedly the case that activity is slowing,” said James Nixon, co-chief European economist at Societe Generale SA in London. “With the euro appreciating and the global economy weakening, the trend in confidence indicators may be down from here with slower growth in the fourth quarter.”
