Eurozone economic sentiment dips slightly in Jan
Thursday, January 27, 2011
LONDON (AP) — Business and consumer sentiment in the 17 countries that use the euro dipped slightly during January but remains high despite tensions over Europe’s debt crisis, official figures showed Thursday.
The European Commission’s economic sentiment indicator for the eurozone fell to 106.5 in January from December’s 106.6. The expectation in the markets was that the indicator would rise to 106.9.
Despite the decline, the indicator stands well above its long-run average, mainly because of buoyant conditions in the industrial sector on the back of a large pickup in orders. At current levels, it points to the eurozone economy growing at an annual 3 percent pace, markedly up on the 1.9 percent recorded in the third quarter of 2010.
Industry has been the main driver of the eurozone’s economic recovery from recession with Germany, Europe’s biggest economy, in particular benefiting hugely from the rebound in global trade.
However, for the economic recovery to be self-sustaining, analysts think that consumers have to ratchet up their spending and so far there’s little sign of that coming.
In its survey, the Commission found confidence among consumers and in the services sector fairly depressed.
Chris Williamson, chief economist at financial information group Markit, said the divergence is largely due to manufacturing enjoying the benefits of strong global demand for goods from countries such as China, India and the Middle East, while service providers are far more reliant upon domestic demand, which remains under pressure in many countries due to deficit reducing austerity measures.
“The ongoing need for these policies to be maintained over the course of the next couple of years suggests that industry will probably continue to outperform for some time,” Williamson said.
Another factor increasingly coming onto the radar is a rise in inflationary pressures in the eurozone economy and that could well be the focal point of next week’s monthly rate-setting meeting of the European Central Bank. The Commission’s survey indicated that higher commodity prices are beginning to ratchet up consumer price expectations.
Though the bank is expected to keep its main interest rate unchanged at the record low of 1 percent, the markets will be keen to hear what ECB president Jean-Claude Trichet says in his ensuing press conference. Following the January meeting, Trichet sounded a more hawkish tone in the wake of figures showing that inflation in the eurozone spiked up in December to 2.2 percent, and above the ECB’s target of keeping inflation “close to, but below 2 percent.”
The small Baltic nation of Estonia became the 17th euro country in January.
Elsewhere, the Commission found that the economic sentiment indicator for the wider 27-nation EU, which includes non-euro members such as Britain and Sweden, fell to 105.8 in January from December’s 106.1.