Europe's biggest economies are showing signs of resilience despite weakness abroad and the refugee crisis on their own doorstep, with firms in Germany and France expressing optimism about their prospects, surveys on Thursday showed. Such strength in the face of economic headwinds from China and other emerging markets could give European Central Bank policymakers pause for thought as they consider whether to expand the bank's trillion-euro stimulus program.
The signals from Germany, the euro zone's number one economy, so far remain positive. Business morale, tracked by the Ifo economic institute's survey of 7,000 firms, unexpectedly improved in September, suggesting company executives in Germany remained upbeat. Ifo economist Klaus Wohlrabe said the slowdown in the Chinese economy was not currently dampening the confidence of German exporters. "We had expected that the export expectations of industry would have perhaps fallen a bit. They did not, they actually rose slightly," Wohlrabe said.
Elsewhere in the economy, the HDE retail association raised its forecast for sales growth in its sector from 1.5 percent to 2 percent this year, thanks to rising real wages and low inflation. Sales could hit a record 469 billion euros ($525 billion), helped by strong growth in online trading, HDE Managing director Stefan Genth said. The surprisingly strong Ifo survey pointed to economic growth of 0.5 percent in both third and fourth quarters, according to BayernLB economist Johannes Mayr.
That could mean the German economy growing faster than the previously predicted 1.8 percent this year, Mayr added. Industry morale in France also beat expectations, rising in September to its highest level since July 2011, data from state statistics body INSEE showed. France has been struggling to deliver enough growth to bring down unemployment, with the economy stagnating in the second quarter, but the government says its labour market reforms are having a beneficial impact on businesses.
Business confidence also rose in the Netherlands in September. There were even positive signs in Italy, the euro zone's third biggest economy, where data on Thursday showed both retail sales and industrial orders rising in July. Italy has been plagued by weak growth for years, but last week the main employers group raised its forecasts for the economy, crediting low oil prices and interest rates and a decline in the euro's exchange rate.
The crisis on Europe's borders which has seen nearly half a million migrants and refugees pour into the continent this year, many fleeing war in Syria, may yet cloud the economic outlook. Morale among German consumers declined for the second consecutive month heading into October, market research group GfK said, amid uncertainty about the government's handling of the crisis.
The German labour office research institute said the arrival of large numbers of refugees could push up German unemployment next year by 70,000. However, Ifo's Wohlrabe said the influx in recent weeks had boosted the retail sector, in particular sales of groceries, with supermarkets seeing a clear rise in turnover that was expected to continue.
He said the scandal around Volkswagen, which has admitted to deliberately falsifying US diesel emissions tests, broke too late to be reflected in the latest Ifo survey. Any negative fallout will not show through until next month. The world's biggest carmaker by sales, VW is a potent symbol of German industrial might and fears have been raised that the scandal could tarnish the reputation of all the country's firms. The stream of relatively upbeat data from the continent will support those who argue that the ECB will need more evidence before ramping up its quantitative easing program. ECB President Mario Draghi said as much on Wednesday. While acknowledging risks to Europe's inflation and growth outlook have increased due to the emerging market slowdown, he said the central bank needed more time before deciding on further stimulus.