Consumer sentiment in Germany and Italy brightened and French consumer spending rose during the summer, data showed on Tuesday, suggesting the recovery in core eurozone states may hold up better than expected in the second half. Morale among shoppers in Europe's largest economy, Germany, is expected to rise going into October to its highest level since May 2008, backed by hopes the recovery will boost incomes, according to the GfK consumer morale indicator.
-- German consumer morale hits highest level in 2.5 years
-- French consumer spending rises in July, falls in August
-- Italian confidence hits highest level since April
-- Spain, Ireland ratings fears point to two-speed recover
Italian consumer sentiment also surged more sharply than expected in September to reach its highest level in five months, as shoppers became more optimistic about their personal finances, the ISAE research institute said. French data offered a more mixed picture, as shoppers took advantage of summer sales to push spending up a stronger than expected 2.7 percent in July, but held back on purchases in August. "This is fairly volatile data but it confirms the picture we've had of a gradual reinforcement of consumption in the euro area," said Paolo Mameli, an analyst with Intesa Sanpaolo.
Germany, France and Italy together account for at least two thirds of economic output in the euro currency area. But the outlook for the region's periphery remains far less rosy, fuelling prospects of a two-speed recovery. Mounting concerns over the sovereign debt burden in Ireland and possible ratings downgrades there and in Spain drove peripheral yield spreads against German Bunds to fresh highs on Tuesday.
GDP growth in the eurozone as a whole accelerated to a surprisingly strong 1.0 percent quarter-on-quarter in the April-June period, largely due to a German surge, but is expected to slow during the second half of the year. The GfK consumer sentiment indicator, based on a survey of 2,000 Germans, rose to 4.9 for October from an upwardly revised 4.3 for the previous month, the Nuremberg-based group said.
"This is an extremely pleasing number. Private households are becoming more confident," said Klaus Schruefer of SEB. "Falling unemployment is contributing to that. Prices will also remain quite stable in the coming months. Despite moderate income increases this should suffice for real income growth."
Analysts were more cautious on sentiment from Italy, saying spending was more likely to be tied to the situation in the job market, which had yet to show any signs of a turnaround. ISAE's confidence index rose to 107.2 in September from an un-revised 104.1 in August, beating all forecasts in a Reuters poll of 15 analysts that pointed to 104.0. The Italian result, the strongest since April, added to a mixed picture for the eurozone's third largest economy, which is emerging only slowly from last year's steep recession.
Recent data has suggested the recovery is slowing, with industrial orders and output weaker than expected and bitter political infighting that has threatened to bring down Prime Minister Silvio Berlusconi's centre-right government. French spending in August dropped 1.6 percent on the month after a surprise 2.7 percent surge in July, which was driven by a sharp increase in spending on textiles and leather goods, thanks to summer sales events.
"Although this suggests that consumption growth is improving, it still remains sluggish, probably reflecting still weak labour market conditions as well as looming fiscal tightening," said Joost Beaumont, economist at ABN Amro. September inflation data from six German states on Tuesday suggested prices in the eurozone as a whole would rise slightly faster, but inflation would remain well within the European Central Bank's target range.