Thursday, May 28, 2009

Europe Confidence As Economic Outlook Rose To Six Month High

. Thursday, May 28, 2009

By stockOzone team

European confidence in the economic outlook rose to a six-month high, adding to signs that record- low interest rates and government spending plans are starting to pull the economy out of the worst recession since World War II.

An index of executive and consumer sentiment in the 16 nations that use the euro increased to 69.3 from 67.2 in April, the European Commission in Brussels said today. The May reading was the highest since November and was above the median estimate of 69 in a Bloomberg survey of 26 economists. Consumers’ price expectations, which turned negative for the first time on record last month, fell to the lowest since at least 1990.

Evidence is mounting that the worst of the financial crisis may be over, as manufacturing and service industry surveys improve and global stocks stand near the highest in six months. European Central Bank President Jean-Claude Trichet said on May 7 that he saw “tentative signs of stabilization” in the economy after the ECB cut its benchmark rate to 1 percent.

“The economy is still actually contracting going into the second quarter, but at a significantly slower rate than we saw in the first quarter,” said Nick Kounis, chief European economist at Fortis in Amsterdam. “At the same time, we’re coming up from very low levels, so even though we’re seeing significant rises we should put it into context.”

European retail sales declined at a faster pace in May as rising unemployment prompted consumers to hold back spending, the Bloomberg purchasing managers index showed today. Euro-area unemployment is at the highest in more than three years.

Consumer Sentiment
The euro was higher against the dollar after the confidence data. The European currency traded at $1.3862 at 10:30 a.m. in London, up 0.3 percent.

A gauge of consumer sentiment in the euro region held at minus 31 in May, the commission report showed. A measure of manufacturers’ confidence improved to minus 34 from minus 35 in April. Consumers’ price expectations fell for a seventh month in May, reaching the lowest since the indicator was first published in 1990. Manufacturers’ selling-price expectations also declined this month, the report showed.

Inflation is expected to slow to a record low this month as the recession and rising unemployment hurt demand. Economists expect a 0.2 percent inflation rate for May, according to a Bloomberg survey. That would be below April’s 0.6 percent and the lowest since the data were first compiled in 1996. May inflation data will be published tomorrow.

The ECB said this month it expects the economy to remain “very weak” for the rest of 2009, before a gradual recovery next year. By contrast, the U.S. recession will probably end in the third quarter, according to 74 percent of economists in a National Association for Business Economics survey. Confidence among U.S. consumers jumped by the most in six years in May, the New York-based Conference Board said on May 26.

That may help Europe since the U.S., the world’s biggest economy, is the second-largest market for euro-area goods. Exports from Germany, Europe’s largest economy, unexpectedly increased for the first time in six months in March, data showed earlier this month.

Deutsche Bank AG, Germany’s biggest bank, returned to profit in the first quarter and Chief Executive Officer Josef Ackermann said on May 26 that he was confident about future earnings. Stock markets are also signaling the worst may be over as the MSCI World Index stands near a six-month high, even as shares fell today.

Disclosure: Author does not own any of the stocks discussed here.

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