Eurozone economic sentiment rises in May

Stronger economy lets ECB kick back, let stimulus work

BRUSSELS, May 30, (AP): Economic confidence is up in the 19 European countries that use the euro, a survey showed Monday, thanks in particular to greater optimism among consumers that has led to a pickup in inflation expectations.

The Economic Sentiment Indicator, a monthly survey by the European Union’s executive Commission, rose to a four-month high of 104.7 points in May from 104.0 in April.

Consumers expressed greater confidence over the general future of the eurozone economy, the prospects for employment as well as savings. Industry managers also sounded more upbeat, in particular about a rise in orders.

Among the eurozone’s biggest countries, France saw the strongest rise in confidence, with Germany enjoying a smaller uptick. The industry and retail sectors expressed a greater interest in hiring, a potential boon to a region still blighted by unemployment of around 10 percent.

In a sign of confidence in consumer demand, companies were expecting to raise their selling prices, particularly in industry and services but also, to a lesser extent, in the retail and construction sectors.

That will be encouraging news for the European Central Bank, which has unleashed a series of monetary stimulus programs to raise consumer price inflation. At last measure, inflation was minus 0.2 percent annually, far below the ECB’s 2 percent target. Low inflation is a sign of a weak economy and can become ingrained, weighing on growth for years.

Europe’s economy is finally showing signs of increasing strength, after years of sluggishness and false starts.

And that means the European Central Bank likely won’t have to step up its ongoing 1.74 trillion-euro ($1.93 trillion) stimulus program when it meets this week.

Fear not — the chief monetary authority for the countries that use the euro will go on pumping newly printed money into the European economy in an effort to raise inflation. But that’s only due to measures that were decided at previous meetings, and which are either still running or just now being implemented.

So analysts don’t expect any new stimulus jolts to be announced at Thursday’s meeting of the bank’s 25-member governing council in Vienna. There’s little sign that President Mario Draghi and Co. are ready to drop more stimulus news. Some economists are saying don’t expect anything more for the rest of this year, if at all.

The ECB is holding steady just as the US Federal Reserve seems to be moving close to a rate increase at its June meeting. It hiked its key rate in December from near zero to a range between 0.25 percent and 0.5 percent, but then held off any more increases amid unsettling swings in stock markets. Global jitters seem to have eased since then. The US recovery is more advanced, so Fed chief Janet Yellen can contemplate withdrawing some stimulus.

Inflation is still way too low, at minus 0.2 percent, and unemployment is painfully high at 10.2 percent. But there are two big factors that should let the ECB kick back for a few months at least.

First, the economy in the 19 countries that share the euro currency is finally showing signs of a somewhat more robust and lasting recovery after a miserable six years in which it was battered by global and local crises. The eurozone grew 0.5 percent in the first quarter from the quarter before. It finally regained the level of output it had in the first quarter of 2008, before the global financial crisis associated with the collapse of US investment bank Lehman Brothers, and before a crisis over high debt in some countries that almost broke up the currency union. Figures published Monday showed that business and consumer optimism rose to a four-month high in May, while inflation expectations picked up across a range of businesses. Auto sales have risen for 32 straight months.

Meanwhile, June will see the implementation of two stimulus measures decided April 21. Those are the decision to purchase high-quality corporate bonds and to offer banks ultra-cheap long-term loans. Both steps are aimed at increasing lending, business and consumer spending, and, in theory, higher prices as demand for goods increases.

The ECB is already purchasing 80 billion euros ($89 billion) in government through at least March 2017 and some private-sector bonds in a program that began in March 2015. Those purchases hand banks money that didn’t exist before in return for their bonds. That’s something only a central bank — the legal issuer of the currency — can do and aims to boost lending and business activity.