European Confidence Adds To Recovery Signs

Daily Forex Fundamentals | Written by ecPulse.com | Jan 07 10 10:37 GMT |

The euro zone restored confidence after the severe fallout on the back of the worst economic recession that hit the economy in 2008. As a result of the improvement signaled in the European economy starting from the second quarter of 2009, confidence climbed in December adding to signs of recovery and providing ample evidence that the economy will grow further in the fourth quarter. Economic confidence rose to 91.3, the highest since June 2008, from 88.8. The economy expanded in the third quarter to 0.4% from the previous contractions of 2.5% and 0.2% recorded in the first and second quarters respectively boosted by the stimulus measures and expansionary monetary policy adopted by the ECB to reviver the economy. Members of the ECB slashed the interest rate to 1% and are spending 60 billion euros on purchasing euro-denominated bonds to support markets with liquidity and give an impetus to economic activities. In response, the economy showed strong data, especially in the third quarter, and still showing progress. PMI manufacturing surged to 51.6 in December from 51.2 in November after the turnaround in global trade which lifted exports for the euro zone's largest economies, while PMI services for December in the euro area climbed to 53.6 from 53.0 a month earlier. According to today's confidence report, industrial confidence increased to -16 from -19 and services confidence soared to -3 from -4, thereby going in line with the expansion in the economy's leading sectors. Moreover, the business climate is becoming better which appeared clearly after the upbeat earnings announced by some European companies and future expansionary plans announced by others. Business climate indicator climbed to -1.22 in December from -1.53 in November. Global demand rebounded again as consume confidence and thereby spending increased. Consumer confidence inched up in December to -16 from -17 in November. Nevertheless, retail sales in the euro zone slipped to -1.2%, the sharpest monthly fall on record, in November compared with the revised 0.2%. Also, the year ending November reading slumped to -4.0% from the revised -1.3%, impacted by the high unemployment (9.8%) in the euro region. Trichet mentioned in December that the economy will recover gradually, and growth will appear in the second half of 2009, where he expects GDP to improve on the quarterly basis, especially after the progress witnessed in the third quarter which more likely will continue in the last quarter. However, he added that the economy will expand at a natural pace in 2010 and recovery will be "anemic" as factors supporting the economy are temporary. The bank projects annual real GDP growth to range between -4.1% and -3.9% this year and between 0.1% and 1.5% next year, while in 2011 it will move between 0.2% and 2.2%. The ECB will gradually scale back, at the appropriate time, the excess liquidity measures and is expected to raise interest rate again in the second half of the current year. After the release of the news the euro continued its slid against the dollar where it is currently traded at 1.4350 recording a high of 1.4446 and a low of 1.4345. Ecpulse disclaimer: The content of ecPulse.com and any page in the website contain information for investors/traders and is not a recommendation to buy or sell currencies, stocks, gold, silver & energies, nor an offer to buy or sell currencies, stocks, gold, silver & energies. The information provided reflects the writers' opinions that deemed reliable but is not guaranteed as to accuracy or completeness. ecPulse is not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trades currencies, stocks, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, stocks gold, silver &energies presented should be considered speculative with a high degree of volatility and risk