Eurozone economic confidence at 10-year high

Confidence in the eurozone's economy rose in August to levels not seen since before the financial crisis, according to the latest sentiment surveys of businesses, economists and consumers, conducted by the European Commission.

Economic sentiment rose to its highest level in 10 years, while the business climate also improved. Consumer confidence, which edged up on the previous month, remained a little subdued, however.

Economic sentiment

The headline economic sentiment index for the eurozone rose to 111.9 in August, from an upwardly revised 111.3 in July as improved confidence in industry and services offset decreases in retail trade sentiment.

Economic sentiment improved in three of the five largest eurozone countries – Italy, France and Spain – but eased in Germany and the Netherlands.

Among the reasons for the 0.6-point fall in Germany appeared to be related to the strength of the euro and its impact on export costs.

Industrial confidence

While industry confidence rose by 0.6 points, much of the downward pressure on the index came from business managers' appraisals of export order books, which worsened.

Although there was no information on the impact of the stronger euro, the balance of Germany's export-led economy has shown signs of tilting back towards higher levels of domestic demand.

The stronger euro increases the costs of exports to countries with weaker exchange rates.

Inflation

As far as monetary policy was concerned, the survey data offered few clues. Inflation expectations failed to show any pressures building, with the inflation expectations index dipping to 11.6 in August, from 11.7 in the prior month.

"The difficult situation of healthy growth and weak inflation continues to trouble the European Central Bank ahead of next week’s governing council meeting," said ING's senior eurozone economist Bert Colijn.

Market reaction

There was little positive reaction on the currency markets. The euro dipped 0.2% against the dollar to $1.1948 and was 0.2% weaker versus the pound at €1.0816.

Stocks were broadly higher, with the pan-European EuroStoxx 50 up 0.3% at 3,399 in mid-morning trade. France's CAC 40 added 0.4%, while Germany's Xetra Dax gained 0.4%.