Eurozone economic sentiment at decade-high

Athens - Eurozone economic confidence rose to the highest level in a decade as European Central Bank (ECB) policy makers prepare for a discussion next week about whether and how to pare back stimulus.

An index of industry and consumer sentiment increased to 111.9 in August from a revised 111.3 in July, the European Commission in Brussels said on Wednesday. Economists surveyed by Bloomberg predicted an increase to 111.3 from a previously reported 111.2.

The Governing Council is set to start deliberations about the future path of quantitative easing when it meets on September 7. With a booming economy showing few signs of being matched by a sustained pickup in inflation and a surging euro threatening to further damp price pressures, policy makers probably won’t rush an exit. 

ECB President Mario Draghi reaffirmed the need for caution in a speech last week in Jackson Hole, stressing that there hasn’t been a self-sustained convergence of inflation to the central bank’s goal of just under 2%. Consumer prices probably increased an annual 1.4% in August, economists predicted before a Eurostat report on Thursday.

Asset purchases are currently scheduled to expire in December.

Confidence improved in all major eurozone countries except Germany. Sentiment in the eurozone’s largest economy was damped by companies’ concern that a strengthening euro would weigh on profit, according to the Ifo institute.

German Chancellor Angela Merkel, who is campaigning for a fourth term in office, said on Tuesday that the currency’s appreciation will almost certainly have an effect on exports.

An increase in industry confidence in the eurozone was fed by more optimistic production expectations and a slight improvement in managers’ assessment of the stocks of finished products, the Commission said. A more positive assessment of the past business situation and higher demand expectations underpinned a gain in services sentiment.

“We believe that the eurozone economy will repeat the 2016 above-potential growth performance this year and next,” Moody’s Investors Service said in a note to clients on Wednesday. “This reflects an improved outlook for all the major economies in the region, including Germany, France and Italy.”

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