Euro Zone Sentiment Up on Hopes for End to Crisis

Euro zone economic sentiment improved more than expected in June, especially among consumers and service providers, data showed on Monday, as hopes increased the economic crisis may be easing.

Mcihael Probst / AP

A monthly survey by the European Commission showed economic sentiment in the 16 countries using the euro rose to 73.3 points in June from 70.2 in May, the third improvement from a  rough of 64.6 points in March.

Analysts polled by Reuters had expected an increase to 70.8 points.

The Commission, executive arm of the 27-country European Union, revised its May sentiment reading up from 69.3.

The improvement was fuelled by the services sector, consumers and, to a lesser degree, industry. Morale in the construction sector stagnated and fell in the retail sector.

"The increase observed at sector and country level is mainly driven by improving expectations, as the main economic actors seem to be gaining confidence that the crisis is easing," the Commission said in a statement.

"However, the level is still below the lows reached in the previous trough at the end of 1992," it added.

The survey confirmed deflationary pressure in the euro zone.

Inflation expectations 12 months ahead among households fell again in June to set a new low of -9 points from a downwardly revised -8 points in May, marking the third consecutive month of expectations of falling prices.

But selling-price expectations among manufacturers increased to -11 from May's -12.

The European Central Bank watches inflation expectations closely in its policy decisions, aiming to anchor them at its price stability target of inflation just below 2 percent over the medium term.

With inflation moving to negative territory and recession persisting, the ECB has cut its main rate to a record low of 1.0 percent.

Separately, the Commission said its business climate indicator rose more than expected to -2.97 in June from a revised -3.11 for May, but the level remained low, suggesting weak production.

"The level is still far below the previous historical lows of 1993. This suggests that year-on-year industrial production growth will still have been negative in May and will remain subdued in June," the Commission said.

Economists polled by Reuters had expected the indicator to come in at -3.00.

The Commission said the rise in the indicator reflected more optimism among managers about production expectations and stocks of finished goods. But their view about order books and export orders books reached new historical lows.

Earlier on Monday, the Conference Board research group said its leading economic index for the euro zone rose 1.9 percent to 95.4 points in May, suggesting the currency area's economy may
be bottoming out.

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