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Eurozone economic sentiment improved for the fourth consecutive month in July pointing towards a possibility of positive growth in the economy during the second half of 2009, a monthly survey published by the European Commission showed Thursday.
The index stood at 76 in July, up from a revised reading of 73.2 logged in the prior month. Economists expected the indicator to climb to 75. However, the level is still far below the long-term average.
Improvement in the economic sentiment came from a general increase in morale in all sectors, except construction. Recovery of the industrial confidence indicator continued, backed by a further improvement in production expectations and normalization in the level of stocks. Industrial confidence improved two points to minus 30 in July. The reading came in line with economists' expectations.
Consumer confidence as well as services confidence also climbed two points each to minus 23 and minus 18, respectively. Both consumer and services sentiments stood above the expected level. Expected reading for consumer sentiment was minus 24 and that for services confidence was minus 19. Confidence amongst retailers moved up by four points to minus 13. At the same time, the gauge for construction remained at the June level of minus 33.
Economic confidence in EU also improved for the fourth month in a row. The index now stands at 75 compared to 71.1 in June. The majority of the member states registered an improvement. Among the largest member states, the UK, Spain, Italy and Germany recorded significant increases in sentiment, while the rise was marginal in France, the Netherlands and Poland.
Separately, the business confidence survey showed that business sentiment for the euro area increased to minus 2.71 in July from a revised minus 2.92. But, the level is still very low, even when compared to the previous historical lows of 1993. This indicates that annual growth in industrial output would have been negative in June and would remain subdued in July.
Among the sub indices of the business climate indicator, both order books and export order books revealed signs of improvement, while managers' production expectations and their perception of the production trend observed in recent months picked up for the fourth consecutive month. Their opinion regarding stocks of finished goods also improved in July.
Commenting on the data, Simon Junker analyst at Commerzbank said euro area should show positive growth rates in the second half of the year, which would possibly be weaker than suggested by the increase in sentiment. Economic sentiment is expected to rise in the months ahead and further signal positive growth rates in the region. Although with the chance of marked sequential growth rates in the short term having increased lately, economic growth is likely to remain muted well into next year.
Further, the European Central Bank would possibly hold its key interest rate at its current low level for a prolonged period.
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