Confidence in euro zone economy near a four-year high

[BRUSSELS] Confidence in the euro zone's economy rose for a fourth straight month in March to its highest since July 2011, a European Commission survey showed on Monday, suggesting the weak euro and lower oil prices are spurring the recovery.

The European Commission's economic sentiment indicator rose by 1.6 points to 103.9, better than the 103.1 economists had forecast in a Reuters poll and building on a recovery that began in December. Business morale improved by 0.14 points to 0.23.

"The recovery is not only gaining momentum but broadening,"said Frederik Ducrozet, senior euro zone economist at Credit Agricole.

"The ECB's helping with the euro, you have oil stabilising and there is no major deflation threat."

Italy showed the biggest jump in morale, increasing 2.4 points, followed by Germany, Spain and the Netherlands. Overall, euro zone households appeared much more optimistic.

Still, the euro zone's recovery is fragile and its economies are diverging. Economic morale in France, the euro zone's second-largest economy, rose just 0.4 points in March.

Despite the uncertainty surrounding Greece, the euro zone's economy finally looks to be leaving behind its crisis after two recessions since 2008, while the European Central Bank's money-printing programme is increasing optimism.

The European Commission expects the euro zone's economy to grow 1.3 per cent this year and 1.9 per cent in 2016.

That would lag the recovery in Britain and the United States but would offer a welcome sign that the bloc can avoid the economic stagnation and deflation many feared just a few months ago.

To combat low inflation, the European Central Bank has begun printing money to buy euro zone government bonds, a policy known as quantitative easing that will see it pump 60 billion euros (S$89.5 billion) a month into the euro zone's economy.

That is weakening the euro against the dollar, helping euro zone exporters. A global oil glut is also making energy cheap.

In another sign that ECB policy is having a positive effect, the European Commission said in its survey that consumers' inflation expectations rose for a second straight month in March, and retailers and manufacturers again increased their forecasts for rising prices and demand.

Overall, the commission noted "the marked improvement in industry confidence" as well as in services, retail trade and consumer confidence, which all pointed to an improvement in companies' plans to hire more staff.

"The improvement in euro area sentiment was fuelled by brightening confidence among consumers, but confidence also improved among managers in retail trade, services, construction and, particularly, industry," the survey said.

REUTERS