Improvement In Eurozone Economic Sentiment Halts In February

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After ten months of uninterrupted increases, the Eurozone economic sentiment eased slightly in February as consumers and retailers showed more pessimism, survey data released by the European Commission showed Thursday.

The economic sentiment indicator edged down to 95.9 in February from 96 in January. That was in contrast to economists' expectations for a reading of 96.4.

A measure for consumer confidence dropped to minus 17 from the previous month's minus 16. The decline reflected in the retailers' sentiment index, which fell to minus 9 from minus 5.

Industrial confidence indicator climbed to minus 13 from minus 14 and the sentiment indicator for the services sector rose to a positive reading of 1 from minus 1. Meanwhile, the confidence indicator for the construction sector stood unchanged at minus 29.

February's economic, consumer and business survey adds to the recent run of worrying evidence on the euro-zone's prospects, said Jennifer McKeown, senior European economist at Capital Economics. "It was the first decline in nearly a year and worse than the consensus forecast of a modest increase," the economist noted.

BNP Paribas economist Clemente De Lucia sees further fall in economic sentiment over the coming months. "The transitory forces, such as fiscal stimuli and the end of the destocking process, which boosted activity particularly in the third quarter of 2009, are indeed fading," De Lucia said in a note.

The economic confidence index for EU stood at 97.4 in February, up from 97.2 in January. Similar to Eurozone, consumer and retailers' confidence fell in February, while industrial confidence remained unchanged. Services sector sentiment indicator stabilized and a measure for construction sector confidence improved.

Among the largest member states, France reported the biggest decline in economic sentiment, followed by Italy. In contrast, Poland reported the most significant increase, while improvements were less pronounced in Spain, Germany and in the Netherlands. Sentiment was broadly unchanged in the U.K.

In a separate report, the European Commission said the business climate indicator for the euro area rose for the eleventh month in a row. It stood at minus 0.98 in February, up from minus 1.13. Nevertheless, the relatively low level of the indicator suggests that year-on-year growth in industrial production in January 2010 was still negative, the Commission said.

The latest confidence figures are a reminder that it is premature to talk about a self-sustaining, jobs-creating recovery, ING Bank economist Martin van Vliet said. "It is too early to tell whether this is a temporary pause or marks the end of the confidence recovery, the economist noted.

Moreover, today's figures highlight the need for the European Central Bank to tread carefully in unwinding unconventional stimulus, and to keep interest rates firmly on for the time being, the ING Bank economist said. The central bank, which maintained its key interest rate unchanged at 1% since June last year, is widely expected to retain the interest rate for a tenth consecutive month on March 4.

Also on Thursday, the Commission maintained its 2010 economic growth outlook for Eurozone at 0.7%. It said the region's economic growth would be muted for most of 2010 and may gain some momentum only towards the end of the year.

(Market News Provided by RTTNews)