By Simone Meier
Jan. 7 (Bloomberg) -- European confidence in the economic outlook jumped in December to a level last seen before the demise of Lehman Brothers Holdings Inc., adding to signs the economy will gather pace this year.
An index of executive and consumer sentiment in the 16- nation euro region rose for a ninth month to 91.3 from 88.8 in November, the European Commission in Brussels said today. That beat economists’ forecasts and was the highest since June 2008, three months before Lehman’s collapse exacerbated the global financial crisis. Retail sales dropped 1.2 percent in November from the previous month, a separate report showed.
European companies are boosting spending and output to meet reviving global orders after governments spent billions of dollars to fight the worst economic crisis since World War II. Manufacturing in the U.S., the world’s largest economy, expanded last month at the fastest pace in more than three years. Rising unemployment may hurt consumer spending, while a stronger euro threatens to undermine exports.
“Sentiment will continue to rise over the coming months even if it doesn’t necessarily translate into a stronger economic performance,” said Christoph Weil, an economist at Commerzbank AG in Frankfurt. “It’s a catching-up process. The fourth and first quarters will still show robust growth rates followed by some weakening.”
Benchmark Bond
The euro was little changed against the dollar after the confidence data, trading at $1.4354 at 10:04 a.m. in London, down 0.4 percent on the day. The yield on the German 10-year benchmark bond was unchanged at 3.38 percent.
Adding to signs the economy is gathering pace, Europe’s manufacturing and services industries expanded for a fifth month in December and European investors grew more confident in January, data showed this week. In Germany, Europe’s biggest economy, business confidence increased to a 17-month high in December.
Porsche SE, the sports-car maker merging with Volkswagen AG, said on Dec. 18 that sales may revive this fiscal year. Infineon Technologies AG, Europe’s second-largest maker of semiconductors, last month raised its first-quarter outlook.
The Dow Jones Stoxx 50 Index has risen 17 percent in the past year, while Germany’s benchmark DAX Index has gained 20 percent during the same period.
Unconventional Measures
The European Central Bank on Dec. 3 kept its benchmark interest rate at a record low of 1 percent and said it will withdraw some unconventional measures as the region’s economy strengthens. The Frankfurt-based ECB on that day predicted economic growth of about 0.8 percent this year and around 1.2 percent in 2011.
“The economic situation has improved,” ECB Executive Board member Juergen Stark told Il Sole 24 Ore in an interview published yesterday. “Data is influenced by a recovery in exports but also an improvement on equity markets and by stimulus measures taken by countries to help the economy. These two last factors are of temporary nature.”
The euro’s 5 percent ascent against the dollar over the past year is weighing on the economic recovery by making European exports less competitive just as surging oil prices threaten to crimp corporate earnings. Industrial orders declined more than economists forecast in October, led by a drop in demand for capital goods such as machinery and tools.
European unemployment probably rose to 9.9 percent in November from 9.8 percent in the previous month, according to a Bloomberg survey. That would be the highest in 11 years. The statistics office will release the report tomorrow.
‘Challenging’
Siemens AG, Europe’s largest engineering company, last month reported its first quarterly loss in a year and forecast earnings to drop in 2010. The Munich-based company expects the market environment to remain “challenging in 2010,” Chief Executive Officer Peter Loescher said on that day.
“I expect that 2010 will be, from a macro-environment point of view, still a challenging year,” said Peter Voser, CEO at Royal Dutch Shell Plc, Europe’s largest oil company. “We’ll see pressure on refining margins and some further pressure on competitive performance regarding costs.”
Economists projected a gain in economic confidence to 90, the median of 17 forecasts in a Bloomberg News survey showed.
To contact the reporter on this story: Simone Meier in Dublin at smeier@bloombert.net
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