By Simone Meier
Sept. 29 (Bloomberg) -- European confidence in the economic outlook increased to the highest in 12 months in September as the economy showed signs of rebounding from the worst recession in more than six decades.
An index of executive and consumer sentiment in the 16- nation euro region rose to 82.8, the highest since September 2008, from 80.8 in August, the European Commission in Brussels said today. That was the sixth straight monthly gain. Economists had projected an increase to 82.7, a Bloomberg survey showed.
European companies including Germany’s ThyssenKrupp AG and Paris-based L’Oreal SA have beaten analysts’ earnings estimates, suggesting government stimulus programs are feeding into the economy. Manufacturing and service industries expanded for a second month in September and German business confidence climbed to a 12-month high. Rising unemployment may prompt consumers to rein in spending, curbing the recovery.
“The figures show that we can expect a further recovery with quarterly growth rates of 0.5 percent in the third and fourth quarters,” said Juergen Michels, chief euro-region economist at Citigroup in London. “However, it will take a long time until the loss of economic activity during the crisis is compensated.”
The world economy is emerging from the deepest slump since the 1930s following $2 trillion of government spending, tax breaks and infrastructure projects. The European Central Bank earlier this month kept its key interest rate at a record low of 1 percent, with ECB President Jean-Claude Trichet saying the economy is past the worst and will show a “gradual recovery.”
Current Quarter
The euro-area economy may expand 0.2 percent in the current quarter and 0.1 percent in the three months through December, the commission said on Sept. 14. In the second quarter, the economy contracted just 0.1 percent as Germany and France, the region’s two largest economies, returned to growth.
Ryanair Holdings Plc Chief Executive Officer Michael O’Leary said on Sept. 24 that he anticipates earnings will rise “significantly” this year. Dublin-based Ryanair, Europe’s largest low-cost airline, is cutting the “cost base and gearing the company up for a period of renewed growth over the coming years,” O’Leary said.
“We do see light at the end of the tunnel; there are more and more signs that the economy is improving,” HeidelbergCement AG Chief Executive Officer Bernd Scheifele said in an interview on Sept. 22. Germany’s biggest cement supplier will benefit “noticeably” from the government’s stimulus programs, he said.
DAX Index
The Dow Jones Stoxx 600 Index has risen 20 percent this year while Germany’s benchmark DAX Index has jumped 8 percent in the past two months, bringing gains to 17 percent in 2009.
L’Oreal, the world’s largest cosmetics maker, on Aug. 28 posted a smaller-than-projected earnings decline and forecast a gradual recovery through the second half of 2009. ThyssenKrupp, Germany’s biggest steelmaker, last month posted a smaller-than- forecast third-quarter loss.
“The recent jump in economic expectations exceeds our own projections,” ThyssenKrupp Chief Executive Officer Ekkehard Schulz said on Sept. 4 in Dusseldorf. “We’re seeing the first signs of bottoming out and rising orders in the steel area.”
European companies are starting to ramp up output to meet reviving global demand. European industrial orders rose for a second month in July, led by durable consumer goods, and exports increased 4.1 percent from June. The euro-area services industry index showed a return to expansion in September.
Jobless Rate
ECB policy makers including Trichet have warned the recovery may face obstacles such as rising unemployment. European retail sales fell for a 16th month in September, Markit Economics said today, citing a survey of more than 1,000 executives. Europe’s jobless rate probably rose to 9.6 percent in August, according to a Bloomberg survey. That would be a 10- year high. The European Union’s statistics office in Luxembourg will release the report on Oct. 1.
The commission noted in today’s report that the September increase in sentiment was “the smallest since the upturn started in April.” The August index reading was revised to 80.8 from the 80.6 reported on Aug. 28.
European households anticipate prices will decline more, today’s report showed. A gauge of consumers’ price expectations over the next 12 months held near a record low, rising to minus 14 in September from minus 16 in August, which was the lowest since the data were first compiled in 1990.
Consumer Prices
The ECB said earlier this month that it projects euro- region consumer prices will rise about 0.4 percent this year and around 1 percent in 2010. In September, consumer prices probably dropped 0.2 percent from a year ago, a Bloomberg survey shows. The ECB aims to keep inflation just below 2 percent.
With companies still cutting costs and the economy struggling to gather steam, ECB officials have signaled they are ready to maintain the bank’s unconventional measures for a while. The ECB has offered banks unlimited cash over 12 months and purchased covered bonds to encourage lending.
“The ECB won’t be in any rush over the next six months, but we see a rate hike towards the end of 2010,” said Laurent Bilke, a senior economist at Nomura in London. “They probably have the tools to negotiate a gradual exit.”
To contact the reporter on this story: Simone Meier in Dublin at smeier@bloombert.net
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