European Confidence

European Confidence Increases as Economy Maintains Momentum

By Fergal O'Brien May 31 (Bloomberg) -- European business and consumer confidence unexpectedly rose in May as German unemployment held at a six-year low, keeping Europe's economy on course to outperform the U.S. for the first time since 2001. An index of sentiment among executives and consumers in the euro region rose to 111.9 this month, the highest level since January 2001, from 111.0 in April, the European Commission in Brussels said today. Germany's jobless rate stayed at 9.2 percent, the lowest since May 2001, while an index of consumer confidence in France rose to a record, separate reports showed. Companies have ramped up investment and added jobs to meet domestic and export demand, pushing down unemployment in the 13- nation euro area to a record low. That's propelling consumer spending, helping the economy build on last year's expansion, which was the fastest since the start of the decade. ``At the moment, the picture in Europe is pretty upbeat,'' said Howard Archer, chief European economist at Global Insight in London. ``A lot of countries have seen a sustained improvement in the labor market and that's supporting consumer spending.'' The euro-area economy expanded a better-than-forecast 0.6 percent in the first quarter from the previous three months, the European Union statistics office said May 15. The economy grew 2.7 percent in 2006, the most since 2000, and the commission this month raised its 2007 forecast to 2.6 percent, saying it expects Europe to outpace the U.S. for the first time since 2001. Economic Growth Elsewhere in Europe, Poland's deputy finance minister, Katarzyna Zajdel-Kurowska, today said economic growth may accelerate this year from the 6.1 percent pace in 2006. The Polish economy grew an annual 7.4 percent in the first quarter. The Swiss government next month will probably increase its 2007 growth forecast from 2 percent, the government's chief economist said, Aymo Brunetti, today. Like the euro area, the Switzerland's economy grew last year at fastest pace since the turn of the decade. The rise in French consumer confidence to a record this month came after the country's jobless rate fell to a 24-year low in April. The six-year low in German joblessness, together with soaring business and investor confidence, suggests that Europe's largest economy will build on last year's expansion. Unemployment across the euro area is expected to have held last month at 7.2 percent, the lowest since records began in 1993, according a Bloomberg survey of economists. EU Monetary Affairs Commissioner Joaquin Almunia said today the jobless rate could move below 7 percent by next year as companies step up production and add workers. New Jobs D+S Europe AG, a German maker of software for call centers, said on May 15 it will add 600 new jobs this year. DAF Trucks NV, the Dutch division of U.S. truckmaker Paccar Inc., this week said it plans to increase daily production at its main plant by about 5 percent. Economists expected the European confidence index would remain unchanged, according to a survey by Bloomberg. The rise was led by an increase in the measure of consumer sentiment, which countered declines by the services and industrial gauges. ``Both industrial and services sentiment eased marginally from April though holding at pretty solid levels,'' said Marco Valli, an economist at UniCredit MIB in Milan. ``All in all, another sign that euro-area growth remains above trend also in the second quarter.'' U.S. Expansion Slower U.S. expansion and the euro, whose rise makes European goods less competitive abroad, may act as a drag on growth in Europe. The euro reached a record $1.3681 on April 27, while first-quarter growth in the U.S. was weaker than expected. The world's largest economy grew at a 0.6 percent annual rate, the weakest in more than four years and less than the 1.3 percent pace initially estimated last month, the Commerce Department reported today. Still, there are signs that U.S. growth may be picking up. Purchases of new homes in the U.S. unexpectedly surged in April by the most in 14 years, while durable-goods orders rose a third straight month. European exports ``have held up pretty well, despite the euro's rise,'' Archer said. ``The U.S. economy hasn't dropped off a cliff and the worst-case scenario hasn't materialized.'' The pace of European expansion is raising concern that inflation will accelerate later this year, prompting European Central Bank policy makers to signal they may increase interest rates again. While a report today showed inflation stayed at 1.9 percent in May, under the bank's 2 percent limit, ECB council member Nicholas Garganas said the central bank will probably raise its inflation forecast next month and is keeping options ``open'' after the rate rise policy makers signaled for June. Garganas, Liebscher ``A number of factors are pointing to an inflation rate which is higher than expected so far this year,'' Garganas said in an interview in Athens yesterday. ECB colleague Klaus Liebscher today said he belongs ``to those that say that you shouldn't exclude anything in the future.'' The Frankfurt-based ECB in March forecast inflation to average about 1.8 percent this year before accelerating to around 2 percent in 2008. The ECB will publish revised growth and inflation projections on June 7. European money-supply growth, which the ECB uses as a gauge of future inflation, increased 10.4 percent in April, close to the fastest pace in 24 years. Investors forecast the ECB will raise its main lending rate at least twice more this year. The implied rate on the three- month Euribor futures contract for December was at 4.52 percent today, up from 4.33 percent on April 30. The contracts settle to the three-month inter-bank offered rate for the euro, which has averaged 16 basis points more than the ECB's key rate since the single currency's start in 1999.

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