European economic confidence unexpectedly rose in August

[MADRID] Sentiment among euro-area businesses and consumers unexpectedly rose in August, respite from an almost non-stop string of disappointing numbers and recession concerns.

The European Commission's index rose to 103.1 from 102.7, defying expectations for a decline. But the surprise move still only lifts the measure to a two-month high, and there have been false dawns before. A jump in May was more than wiped out over the following two months.

The increase may not be enough to shift European Central Bank policy makers from their path toward more stimulus, particularly after a month that saw Germany's economy drift closer to a recession, a slump in manufacturing deepen, trade tensions escalate and the possibility of a no-deal Brexit rise.

The August uptick came from "markedly higher confidence" in industry and retail trade, the commission said, which outweighed a a significant deterioration in services and construction. Managers in industry were more optimistic about production expectations and order books, a view somewhat out of line with pessimism seen in August's Purchasing Managers Index.

The decline in services confidence - the third in a row-- is an unwelcome development. The sector has so far remained resilient in the face of an imploding manufacturing sector, beset by trade tensions and automotive woes.

That's helped to support overall euro-area growth, and a continued downward trajectory would be a troubling sign of a deepening malaise.

A slowdown in German manufacturing, which is heavily reliant on foreign demand, has already put Europe's largest economy on the brink of recession. The closely watched Ifo business expectations gauge has fallen every month bar one this year, partly on concern about the fallout from the tit-for-tat tariff battle between Washington and Beijing.

Exporters around Europe have felt the pinch of a slowing German economy, which could shrink by 0.2 per cent in the third quarter, DIW economist institute said on Wednesday. The economy contracted by 0.1 per cent in the second quarter.

Spanish exporters, for instance, have seen weaker demand from German companies since the end of last year and they are worried about how the likely recession in Europe's economic powerhouse will continue to drag on their sales.

Still, Antonio Bonet, head of a Spanish association of major exporters and investors, says the executives he represents are optimistic that Germany's downturn will be a "small recession" rather than an economic upheaval.

BLOOMBERG