The 17-nation eurozone economy continues to make progress, official data showed Wednesday, but a modest recovery shows signs of slowing and the outlook is mixed. The European Commission said its Economic Sentiment Indicator (ESI), a measure of overall confidence, rose 0.9 points to 97.8 points in October but the pace of improvement was slower.
"While the upward trend observed since May has been continued, the magnitude and sectoral scope of the improvement in confidence has moderated compared to recent months," the Commission said in a statement. Ben May, European economist for Capital Economics, said the survey pointed to "moderate eurozone growth" continuing in the fourth quarter but below what is hoped for.
"On past form, the ESI now points to annual growth of almost 1.0 percent. This is consistent with further, albeit small, quarterly rises in the third and fourth quarters of about 0.2 percent," May said in a note. "Overall, (it is) another sign that the eurozone has continued to grow but we continue to think that the recovery will remain sluggish and that growth will be weaker than the consensus expectation," he added.
The eurozone emerged from a record 18-month recession in the second quarter this year with better-than-expected growth of 0.3 percent but recent data has suggested the expansion is cooling, a cause of concern when unemployment remains near record highs at 12 percent. The jobless figures for September are due Thursday and will be closely scrutinised after showing only the smallest of improvements.
Some positive news on that front came from Germany, Europe's biggest economy, where unemployment was unchanged at 6.9 percent in September. "The labour market is not reacting much to the mixed economic outlook and remains fundamentally sound," the Federal Labour Office said, a view shared by analysts. ING DiBa chief economist Carsten Brzeski described the German labour market as a "source of stability," even if the usual autumn upturn was "somewhat softer than normal."
"However, with these numbers, the German labour market still remains an important growth driver," Brzeski said. A cause of concern, however, is that in talks on forming a coalition government, the Social Democrats are demanding the introduction of a minimum wage. "After the introduction of a minimum wage, it will be hard to squeeze additional positive effects out of the labour market," Brzeski warned. Meanwhile, figures in Madrid showed Spain finally exiting a deep two-year recession with third quarter growth of 0.1 percent on the back of strong exports. But unemployment at near 26 percent and falling only very slowly is a major obstacle.
"While economic prospects are considerably better than a year ago, particularly in the external sector, domestic weakness is likely to hold back any recovery in the wider economy," Capital Economics said in a note. In its ESI review, the Commission said the improvement was driven by industry and to a lesser extent consumers, while services, retail trade and construction all weakened.
Among the five biggest eurozone economies, sentiment improved in the Netherlands with a gain of 3.3 points, France was up 2.6 and Germany, Europe's powerhouse, put on 0.8 but Spain dropped 2.2 and Italy 2.0. For the wider 28-member European Union, the Commission said its ESI reading increased 1.1 points to 101.8 in October.
Christian Schulz of Berenberg Bank said the October ESI eurozone figure was higher than the expected 97.2 points and reflected a strong export performance helping industry. If the reading remains below its long-term average, the recovery is still "making further progress," Schulz said, citing as well the Commission's Business Climate Indicator. The Commission said the BCI for the eurozone rose 0.18 points in October to finish at minus 0.01, again extending a rise from May. At the worst of the debt crisis and economic slump in 2009, the BCI was at more than minus 20 points for several months.