Nov. 27 (Bloomberg) -- European confidence in the economic outlook improved in
November to the highest since the collapse of Lehman Brothers Holdings Inc.,
suggesting the recovery in the 16-member euro region is gathering strength.
An index of executive and consumer sentiment rose for an eighth straight month
to 88.8 from 86.1 in October, the European Commission in Brussels said today.
That was the highest since September 2008 and above the 88 projected by
economists, according to the median of 27 forecasts in a Bloomberg survey.
The euro-area economy emerged from its worst recession in over six decades in
the third quarter after governments spent billions of euros on stimulus
programs and the European Central Bank lowered borrowing costs close to zero.
HeidelbergCement AG, Germany’s largest cement maker, said this month that it is
“very optimistic” about the outlook. Rising unemployment and a stronger euro
are threatening to undermine the recovery.
“It’s a good outcome, supporting evidence that the euro- region economy has
embarked on a gradual recovery,” said Nick Kounis, chief European economist at
Fortis Bank Nederland NV in Amsterdam. “The indicator still has some catching
up to do even with the recovery likely to remain moderate.”
The euro was little changed against the dollar after the report, trading at
$1.4919 at 10:38 a.m. in London, down 0.7 percent on the day. The yield on the
German 10-year benchmark bond was unchanged at 3.16 percent.
OECD Forecast
The global economy may expand 1.9 percent next year and 2.5 percent in 2011,
the Organization for Economic Cooperation and Development said on Nov. 19. The
Paris-based group previously forecast the economy to grow 0.7 percent in 2010.
In the euro region, gross domestic product may rise 0.9 percent next year
instead of a previously projected stagnation, the OECD forecast.
Adding to signs of recovery, Europe’s manufacturing and services industries
expanded for a fourth month in November and European investors became more
optimistic. In Germany, business confidence rose to a 15-month high in
November.
Bulgari SpA, the world’s third-largest jeweler, said on Nov. 12 that it
returned to profit in the third quarter on reviving global demand. Chief
Executive Officer Francesco Trapani said he expects “a general improvement,
especially in the first quarter” of next year.
Demand is “slowly reviving,” Martin Winterkorn, CEO of Germany’s Porsche SE
and Volkswagen AG car manufacturers, said on Nov. 25. “I’m cautiously
optimistic on the outlook for 2010.”
‘Substantial Uncertainties’
The Dow Jones Stoxx 50 Index has risen 14 percent this year while Germany’s
benchmark DAX Index has increased 2 percent in the past three months, bringing
gains to 16 percent in 2009.
ECB President Jean-Claude Trichet said on Nov. 5 that he expects Europe’s
economy to gather strength in the second half and recover at a “gradual pace”
in 2010. The Frankfurt-based central bank has purchase covered bonds and
injected billions of euros into markets to restore lending.
“On the one hand, there are signals that seem to suggest the low point of the
crisis is behind us,” ECB council member Nout Wellink said on Nov. 25. “On the
other hand, the recovery is fragile and clouded by substantial uncertainties.”
The euro’s 19 percent ascent against the dollar since mid- February is
threatening to curb the recovery by making exports less competitive. European
officials have urged China to loosen controls on the yuan after the country
kept its currency largely unchanged versus the dollar for more than a year,
exposing the euro region to the dollar’s slide. Trichet is scheduled to meet
Chinese authorities on Nov. 29 in Nanjing to discuss currencies.
Weaker Dollar
“There will be a bit stronger pressure on China even if the point is probably
more effectively made behind the scenes,” said Julian Callow, chief European
economist at Barclays Capital in London. “I imagine Trichet having gone all
this way, that they want to come back with a message that China understands
their position and is committed to more flexibility in due course.”
Deutsche Telekom AG Chief Executive Officer Rene Obermann said on Nov. 5 that
the company is looking “very carefully” at developments in currency markets.
European Aeronautic, Defence & Space & Co., the owner of Airbus SAS, said on
Nov. 16 that quarterly profit slumped 77 percent because of a weaker dollar.
With companies cutting costs and eliminating jobs to help shore up earnings,
the ECB has signaled it’s in no rush to withdraw stimulus measures. ECB council
member Guy Quaden said on Nov. 17 that while there are “many reasons to expect
a general recovery in 2010,” the central bank still has to “face and discuss
the problems of an exit strategy.”
‘Extremely Cautious’
European households anticipate prices will decline further, today’s report
showed. A gauge of consumers’ price expectations over the next 12 months rose
to minus 11 in November from minus 14 in the previous month.
“We’re extremely cautious on the outlook,” said Sylvain Broyer, chief
euro-region economist at Natixis in Frankfurt. “The time to withdraw liquidity
measures hasn’t yet come. There’s no sustained recovery and the economy remains
fragile.”
The ECB will release its latest forecasts on the economic development and
inflation on Dec. 3 when policy makers meet for their monthly rate decision in
Frankfurt.
To contact the reporter on this story: Simone Meier in Dublin at
sme...@bloombert.net
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