Euro-area confidence at four-year high as ECB mulls stimulus

[MADRID] Euro-area economic confidence matched its highest level in more than four years as the European Central Bank prepares to make a decision on whether to increase stimulus.

An index of executive and consumer confidence stood at 106.1 in November, the European Commission in Brussels said Friday, and October's reading was revised to the same level from an initial 105.9. The figures are the strongest since May 2011. Economists in a Bloomberg survey predicted the gauge would stay unchanged at 105.9.

With a slowdown in emerging markets and persistently low inflation testing the strength of the currency bloc's recovery, the ECB is debating whether to provide a new round of easing. Options include propping up its 1.1 trillion-euro (S$1.6 trillion) asset-purchase program and cutting the deposit rate further below zero. The Governing Council will make a decision on Dec 3.

"The ECB has already made up its mind, and Draghi will deliver next week," said Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam. "You'd have to see spectacular change to sway the ECB from taking action at this point given that its main is inflation not rising quickly enough."

Ahead of next week's meeting, Mr Kounis expects Mr Draghi to be "quite aggressive" in his delivery, announcing a package of measures including a rate cut, an open-ended extension of QE upping the amount of monthly purchases and strong forward guidance.

A gauge for sentiment in the building sector rose to minus 17.8 in November from minus 20.7 in October. An index for confidence in retail trade fell to 5.8 from a revised 6.4 the previous month. Sentiment in industry declined, while measures for services and consumers increased.

ECB President Mario Draghi has signaled more stimulus is in the wings - hinting at a near-certain move after its last meeting in October, invoking his predecessor Jean-Claude Trichet's preferred signal for imminent action of being "vigilant."

Adding to the dovish tone, Mr Draghi said Nov 20 the central bank has a duty to bring up inflation closer to its 2 per cent target and it must do so "as quickly as possible." Euro area consumer prices rose an annual 0.1 per cent in October. Core inflation - which strips out volatile elements such as energy and food prices - jumped to 1.1 per cent, the highest level since Aug 2013.

Europe has been grappling with the political fallout of Nov 13 attacks in Paris that killed at least 130 people. According to the European Commission a "large majority of the survey results" were collected before the series of shootings and explosions in the French capital.

BLOOMBERG