Euro-area con­fi­dence un­changed as de­fla­tion risks damp out­look

The Pak Banker - - COMPANIES/BOSS -

LONDON: Eco­nomic sen­ti­ment in the euro area was un­changed in De­cem­ber, un­der­lin­ing the frag­ile state of the re­cov­ery two weeks be­fore the Euro­pean Cen­tral Bank de­cides whether more stim­u­lus is needed.

An in­dex of ex­ec­u­tive and house­hold con­fi­dence re­mained at 100.7 in Novem­ber, the Euro­pean Com­mis­sion in Brussels said to­day. Econ­o­mists pre­dicted an in­crease to 101.2, ac­cord­ing to es­ti­mates in a survey.

The re­port comes a day after data showed the re­gion's in­fla­tion rate fell be­low zero for the first time in more than five years. Pol­icy mak­ers, who prob­a­bly dis­cussed quan­ti­ta­tive eas­ing at an in­for­mal din­ner in Frankfurt last night, dis­agree about whether ac­tion is re­quired, with some ar­gu­ing de­fla­tion risks have in­creased and oth­ers point­ing to the stim­u­lat­ing ef­fects of lower prices on the econ­omy.

"Growth is very weak," said Nick Kou­nis, head of macro re­search at ABN Amro Bank NV in Am­s­ter­dam. "Pol­icy mak­ers need to do what they can to support de­mand. The econ­omy can do with more mon­e­tary stim­u­lus."

In­dus­trial con­fi­dence de­te­ri­o­rated to mi­nus 5.2 in De­cem­ber from mi­nus 4.3 in Novem­ber, ac­cord­ing to to­day's re­port. Sen­ti­ment in the ser­vices sec­tor rose to 5.6 from 4.4. Con­fi­dence in re­tail trade, con­struc­tion and among con­sumers also im­proved.

While De­cem­ber forecasts by the ECB for growth of 1 per­cent this year and 1.5 per­cent in 2016 may prove too pes­simistic amid a slump in the cost of oil, in­fla­tion pro­jec­tions of 0.7 per­cent and 1.3 per­cent, re­spec­tively, are prob­a­bly too high. The pre­dic­tions were finalized be­fore the most re­cent de­cline in crude. ECB Pres­i­dent Mario Draghi has said that de­fla­tion risks "can­not be en­tirely ex­cluded" and may de­mand a re­sponse. Euro-area pro­ducer prices fell 1.6 per­cent in Novem­ber from a year ear­lier, mark­ing the 16th con­sec­u­tive an­nual de­cline, ac­cord­ing to a sep­a­rate re­port. At the same time, re­tail sales rose for a sec­ond month, with a 0.6 per­cent gain from Oc­to­ber ex­ceed­ing econ­o­mists' es­ti­mates. Markit Eco­nomics said this week that sur­veys of pur­chas­ing man­agers sug­gest the econ­omy ex­panded 0.1 per­cent in the fourth quar­ter. A gauge of Ger­man man­u­fac­tur­ing and ser­vices ac­tiv­ity sig­naled only "lack­lus­ter" growth, while French out­put de­clined for most of 2014 and a mea­sure for Italy showed a re­turn to con­trac­tion in De­cem­ber.

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