Europe News

Euro zone business morale hits 27-month high

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Business morale across the euro zone carried on rising in November to its strongest level since August 2011 - boosting hopes that firms could spur on the 17-country region's bumpy economic recovery.

The European Commission's monthly business and consumer survey, published Thursday, revealed that economic sentiment increased to 98.5 in November - up from 97.7 in October. The figure was higher than the 98 expected by analysts polled by Reuters.

The increase was driven by improved confidence in services (which hit a 20-month high) and industry (a 27-month high) across the euro area, Europe's statistics agency Eurostat said. Morale did weaken in construction, however, and consumer confidence in November also slipped back, after growing for 11 straight months.

(Read more: Euro zone economy losing steam as PMIs disappoint)

"While the upward trend observed since May has been preserved, the improvement in confidence has noticeably decelerated over the past two months, mirroring differences in developments across sectors," Eurostat said in a release accompanying the data.

Is deflation good for the euro zone?

The mixed picture comes amid concerns about the strength of the euro zone's economic recovery. After the longest contraction in continental Europe in over 40 years, the region pulled out of an 18-month stretch of negative growth in the second quarter of 2013.

But data published earlier this month revealed that the euro zone's economic growth slowed in the third quarter. Gross domestic product (GDP) for the 17-nation bloc came in at just 0.1 percent quarter-on-quarter in the third quarter, marking a slowdown from a 0.3 percent expansion in the second quarter.

Meanwhile, last week, the composite purchasing manager's index (PMI) survey for the region revealed that business activity in the euro zone fell unexpectedly in November, prompting concerns that the region's recovery was losing steam.

(Read more: Why euro zone slowdown should worry the world)

Howard Archer, chief U.K. and European economist at IGS Global Insight, said Thursday's business and consumer survey supported hopes that the euro zone could gradually establish economic recovery - despite the relapse in GDP growth.

"Looking ahead, the hope for the euro zone is that current rising confidence will encourage businesses to lift their employment and investment plans," he said in a note.

"However, November's dip in consumer confidence reinforces suspicion that euro zone consumers will likely remain generally pretty cautious in their spending in the near term at least which will hardly help growth prospects."

Economic sentiment improved in four of the five largest euro zone economies - Italy, Spain, the Netherlands and Germany - but deteriorated in France, in yet another sign that the country's economy was being left behind.

(Read more: Is France heading for a new recession?)

The survey came on the same day that separate data, published by the European Central Bank (ECB), reveal that lending to businesses in the euro zone disappointed in October.

Lending to euro zone businesses fell by 14 billion euros in October - after slipping by 11 billion euros in September.

"Banks likely believe the economic situation and outlook in many euro zone countries still provides an uncertain and risky backdrop in which to lend despite the euro zone eking out modest growth since the second quarter," Archer added.

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