Euro-area confidence unchanged as deflation risks damp outlook
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.