Europe Economic Confidence Rises as Exports Improve (Update2)
Share Business ExchangeTwitterFacebook| Email | Print | A A A
By Simone Meier
July 29 (Bloomberg) -- European confidence in the economic outlook rose to the highest in more than two years in July and German unemployment declined for a 13th month as exports sustained a recovery in the region.
An index of executive and consumer sentiment in the 16 euro nations increased to 101.3 from 99 in June, the European Commission in Brussels said today. That’s the highest since March 2008. The number of people out of work in Germany fell a seasonally adjusted 20,000 to 3.21 million, the lowest since November 2008, the Federal Labor Agency said.
Europe’s economic prospects, dented by the Greece-led budget crisis, are improving as companies from German bank Deutsche Bank AG to French luxury-goods maker LVMH Moet Hennessy Louis Vuitton SA beat analysts’ profit estimates. Growth in Europe’s services and manufacturing industries accelerated in July and Peter Loescher, chief executive officer of Siemens AG, said today that he sees a “clear stabilization and a recovery of the global economy.”
“July’s sharper-than-expected increase in economic sentiment will further allay fears of a near-term double dip recession in the eurozone and may give fresh support to the euro,” said Martin van Vliet, an economist at ING Group in Amsterdam. Still, the “recovery is bound to lose steam in the second half of the year” as global growth slows.
The euro was little changed after the confidence report. Earlier, it rose to the highest since governments announced a May 10 package to stop the sovereign debt crisis, climbing as much as 0.7 percent to $1.3085. The euro has gained 6.8 percent against the dollar this month.
German Jobless
Economists had forecast economic confidence to increase to 99.1 in July, according to the median of 26 estimates in a Bloomberg News survey. In Germany, the adjusted jobless rate fell to 7.6 percent from 7.7 percent.
The commission’s index is based on a survey of 130,000 managers and 40,000 consumers conducted in the first two weeks of the month. A gauge of confidence among consumers rose to minus 14 in July from minus 17 in June, the commission said. Manufacturing sentiment increased to minus 4 from minus 6, while confidence among services companies advanced to 6 from 4.
The euro is still 9 percent weaker against the dollar this year, which has helped boost export growth by making European goods more competitive abroad. Siemens, Europe’s largest engineering company, said today that quarterly income rose 40 percent. Volkswagen AG, Europe’s largest carmaker, today reported its biggest quarterly profit in two years on rising orders.
Export Outlook
Still, exporters may struggle to maintain their sales growth if the world recovery loses momentum. China’s economic expansion slowed in the second quarter and industrial production cooled more than economists forecast in June. In the U.S., the world’s largest economy, confidence among consumers dropped in July to the lowest level in a year.
Today’s indicators “challenge the idea of a slowdown likely taking place in the second half but there’s not enough evidence to go against it,” said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London. “Until I get evidence of foreign demand picking up again, I can’t change that view.”
The euro-region economy may lag behind other industrialized economies this year, expanding just 1 percent, the International Monetary Fund said on July 8. In Japan, the economy may grow 2.4 percent in 2010 while U.S. gross domestic product is seen increasing 3.3 percent, the IMF forecast.
Take Off?
“I don’t feel that the economy is recovering very quickly,” said Charles Edelstenne, CEO at Dassault Aviation, a maker of corporate jets and fighter planes, today. “But I think all the same my experience from the past shows that, it’s always the moment when we least expect it that things take off.”
For now, executives are cranking up their assembly lines. Manufacturers’ capacity utilization rose to 77.4 percent in the third quarter from 75.5 percent in the previous three months, the commission said in today’s report. That’s the highest since the fourth quarter of 2008.
A gauge measuring euro-area manufacturers’ expectations in their export orders increased to minus 22 from minus 25 and an indicator of employment expectations also increased. A gauge of overall order books gained to minus 21 from minus 26.
In Italy, business sentiment also improved in July, the Isae Institute in Rome said today. German business confidence unexpectedly surged to a three-year high this month and the number of French jobseekers declined in June.
Beating Forecasts
French Finance Minister Christine Lagarde today told Bloomberg Television in an interview from Paris that she sees a “serious pick-up” in global growth next year led by faster- growing economies including China and India.
While Europe’s economy has largely relied on exports, improving consumer optimism means households may become more willing to spend. Deutsche Lufthansa AG, Europe’s second-biggest airline, said today that it tripled its quarterly operating profit, topping analysts’ estimates, on a recovery for travel.
Bernard Arnault, chief executive officer of LVMH, the world’s largest maker of luxury goods, said on July 27 he’s “fairly confident” about the second half after profit surged 53 percent in the year’s first six months. Deutsche Bank, Germany’s largest bank, on the same day reported second-quarter profit that beat analysts’ estimates.
Momentum
“The current economic momentum is likely to continue over the remainder of the year,” Deutsche Bank CEO Josef Ackermann said in a letter to shareholders on July 27. “Worries about industrialized countries sliding back into recession are subsiding.”
To shore up investor confidence in the financial system, finance chiefs have conducted stress tests on the European banks. The Committee of European Banking Supervisors said on July 23 that only seven of 91 EU banks failed the tests and European Central Bank President Jean-Claude Trichet on July 26 called them “a very important transparency exercise.”
“The tests have for sure been enough to restore investor confidence,” ECB council member Miguel Angel Fernandez Ordonez said on July 26. “In Europe, we need to work more in other fields, not only in the field of financial institutions. We have to work more on the national level to reduce fiscal deficits.”
Governments from Spain to Ireland have already stepped up consolidation efforts to push down budget shortfalls. Greece, which triggered the crisis with the revelation that its deficit was more than four times the EU limit, has pledged to trim the shortfall to 8.1 percent of gross domestic product this year, from 13.6 percent last year.
Some executives remain skeptical about the strength of the economic recovery. Hans-Juergen Thaus, co-CEO of Krones AG, the world’s largest maker of bottling and packaging equipment, said on July 28 that “one cannot say that things are back to rosy” for the Neutraubling, Germany-based company.
“Too many uncertainties remain, such as growth in China, the stability of the euro, the development of financial markets and high government deficits,” Thaus said.
To contact the reporter on this story: Simone Meier in Zurich at
smeier@bloomberg.netLast Updated: July 29, 2010 05:53 EDT
Enviado: 4/8/2010 13:47