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Last updated: January 30, 2013 3:12 pm
Business confidence in the eurozone grew more than expected in January, the latest sign that the bloc’s economy is slowly emerging from the worst economic crisis since the 1930s Great Depression.
However, separate data from the European Central Bank showed that banks were still tightening credit standards for companies and households – highlighting one of many obstacles to a return to growth in the eurozone.
The European Commission’s economic sentiment indicator rose from 87.8 in December to 89.2 as managers predicted that the service and construction sectors would pick up across the 17 countries in the currency bloc. The strongest improvement in sentiment was registered in Germany, the Netherlands and Spain.
“The third successive, and appreciable, rise in eurozone economic sentiment to be at a seven-month high in January adds to the evidence that eurozone economic activity bottomed out around last October and growth prospects are brightening,” said Howard Archer, economist at IHS Global Insight.
The data from the ECB’s quarterly bank lending survey showed that the degree to which banks were tightening credit standards to businesses was broadly stable in the fourth quarter compared with the third, but increased for households. Even though the banks reported that it was easier for them to fund themselves, they expected the trend to continue into the first quarter because of the weak economic outlook and elevated risk perception.
The survey also showed that there was a pronounced fall in demand for loans from businesses.
The combination of a gradual improvement in business confidence and continuing doubt over how to rekindle growth is likely to leave the ECB in wait-and-see mode when its interest rate-setting governing council meets next week.
None of the 75 economists surveyed by Reuters in a poll released on Wednesday expected the ECB to cut rates on February 7.
“We do not expect a change in rates, or any hint that a change is imminent,” Dirk Schumacher, economist at Goldman Sachs, said in a note. “At the same time, the latest lending data do not signal any genuine improvement in financial conditions in the periphery,” he said, adding that this weakness in lending would be where the ECB focused, although he did not expect any new unconventional measures to tackle the problem.
The improvement in business confidence comes as it emerged this week that almost €100bn in private funds flowed back into the eurozone countries worst affected by the sovereign debt crisis that has engulfed Europe.
Ewald Nowotny, head of Austria’s central bank and a member of the ECB’s governing council, said that the recovery of financial markets was having a positive effect on the real economy.
News, commentary and analysis of the eurozone debt crisis and possible contagion within the EU
There is growing hope that the worst of the crisis is over, although European leaders continue to be cautious.
“The fire is under control,” Steffen Kampeter, German deputy finance minister, told the BBC in a radio interview on Tuesday. “I wouldn’t say that the crisis is over but the indicators show it has calmed down . . . We have to take care it will not start again.”
Despite improving sentiment in the services sector, confidence among managers operating in the manufacturing sector remained unchanged as order books and investment continued to wane.
The stark conditions of Europe’s heavy industry were highlighted by a violent protest this week in Belgium after the world’s largest steelmaker, ArcelorMittal, announced the closure of a coke plant and six production lines, putting 1,300 jobs at risk.
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