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Surge in consumer confidence lifts euro zone economic sentiment

A woman buys products in a grocery market in Athens July 2, 2013. REUTERS/John Kolesidis
A woman buys products in a grocery market in Athens July 2, 2013. REUTERS/John Kolesidis

By Martin Santa

BRUSSELS (Reuters) - A surge in consumer confidence helped boost economic sentiment in the euro zone in March to its highest level since July 2011, data from the European Commission showed on Friday.

The lift will encourage those in the European Central Bank who have been grappling with sluggish price rises, which reflect weak consumer demand.

Consumers appeared to shrug off concerns about the impact of the crisis in Ukraine although a German GfK sentiment survey released on Wednesday, which was also upbeat, indicated the mood among consumers in Europe's biggest economy could worsen if the crisis in Crimea spreads.

"Consumer confidence was particularly buoyant, registering the sharpest monthly increase since April 2009," the European Commission said.

Economic sentiment across the 18-nation bloc increased to 102.4 this month from 101.2 in February, exceeding market expectations of 101.4, while the consumer confidence reading rose to -9.3 from -12.7 in February.

Economic sentiment has improved sharply this year and the March reading was the highest since July 2011, when it stood at 103.7, according to Thomson Reuters data.

Sentiment in the Netherlands jumped by 2.3 points to 100.3, followed by a 2.2 improvement in Spain. Italy rose by 1.3 points, France by 0.7. Morale in Germany, Europe's strongest economy, brightened by 0.4 point.

Confidence among businesses was more mixed.

The European Commission said that increases in services and retail trade confidence were comparatively modest and industry and construction sentiment remained broadly unchanged compared to February.

The bullish consumer data is likely to strengthen those in the ECB who do not want to ease policy any further for now despite very low inflation, which raises the risk of potentially damaging deflation. Falling prices tend to discourage consumers from spending because they expect prices to fall further.

"While yesterday's weak money and credit growth figures argue in favor of further monetary easing, the further brightening in economic sentiment in March will strengthen the hands of the hawks on the ECB's Governing Council in making the case for continued inaction at next week's policy meeting," said Martin van Vliet, an analyst with ING.

Economists polled by Reuters expect the ECB to leave rates on hold at its policy meeting next Thursday despite February inflation at an uncomfortably low 0.7 percent year-on-year.

"We believe that if the ECB does eventually act, it will probably include measures aimed at adding liquidity," said Howard Archer, chief European economist at IHS.

While economic recovery is strengthening and making Europeans more optimistic about the future, it is still too weak to spur robust job creation that would encourage more spending.

Archer said the sharp increase in consumer confidence brought the reading to a 76-month high in March, adding the hope now was that rising confidence would encourage businesses to hire more and boost investment plans.

Unemployment in the euro zone remains close to record highs at 12 percent, even though job creation in the last quarter of 2013 rose for the first time in nearly three years.

While employment plans were revised upwards in the retail trade and construction sectors, they remained virtually unchanged in industry and services, according to the European Commission data.

The business climate index for the 9.5 trillion euro economy was broadly unchanged at 0.39 in March, compared with 0.36 in February, the data showed. Analysts polled by Reuters saw the reading at 0.40 in March.

(Reporting by Martin Santa; Editing by John O'Donnell and Susan Fenton)

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