Economic confidence in Europe stronger than expected

BRUSSELS -- Confidence in the European economy fell in December to the lowest level in nearly two years but not by as much as economists had expected in the eurozone, a European Union survey showed Monday.

The European Commission's eurozone economic sentiment indicator slipped in December to 104.7 points in the single currency bloc -- the lowest level since March 2006 -- from 104.8 points from November.
But the decline was not as sharp as the 104.0 points economists had forecast, as polled by Thomson Financial News.
"December's very small fall in the EC's eurozone economic sentiment indicator provides some hope that activity in the region is slowing only moderately," analyst Jennifer McKeown said at consultancy Capital Economics.

"At this level, the index still points to healthy gross domestic product growth of around 2.5 percent year on year," she added.

However, confidence in the economy of the 27-member EU fell more markedly, easing back to 107.1 points in December -- also the lowest level since March 2006 -- from 107.5 points in November.

Among Europe's biggest economies, confidence deteriorated sharply in Britain, Spain and France and less so in Germany and Poland while Italy saw a marked improvement.

The European Commission said weaker confidence in the industry, retail trade, and construction sectors drove the overall decline across Europe while consumer confidence also eased in the eurozone.

A separate eurozone business climate indicator from the European Commission also fell slightly, easing to 0.92 points in December from 1.03 points in November.

Economist Howard Archer with consultancy Global Insight said that the data would make life difficult for the European Central Bank as it strives to keep inflation under control amid a weakening economy.

"Current elevated eurozone inflation, faltering growth, a very strong euro and still significant major uncertainties over credit markets continue therefore to make life very difficult for the ECB," he said.

Eurostat estimated last week that inflation in the eurozone held steady in December at 3.1 percent and it reported on Monday that industrial producer prices accelerated by 4.1 percent in November from 3.3 percent in October.

Archer warned that record low unemployment in the eurozone, which Eurostat said on Monday remained unchanged in November at 7.2 percent of the workforce, could spark pay rises which could fuel faster inflation.

"The low unemployment rate and recent markedly higher inflation will maintain the ECB's concern that pay could move significantly higher across the eurozone over the coming months," he said.

The ECB meets on Thursday for its first interest rate setting meeting of the year.