Eurozone, EU economic confidence firms

Clouds of economic gloom across the eurozone lifted Wednesday, as analysts hailed tentative signs of recovery with the latest European Commission data showing rising optimism among business leaders and consumers. For the third month running, the EU's eurozone confidence index rose markedly against a background of rapidly easing tensions over Europe's three-year-old sovereign and banking debt crisis. The index gained 1.4 points from the December level to reach 89.2, against a long-term average of 100. While European stock markets fell on news the US economy contracted in the fourth quarter of last year, the euro jumped above $1.35 on the brighter data from the euozone, traders said. And analysts wasted little time in declaring the positive signals as proof of recovery, even if consumer spending is expected to lag for some time. "Sentiment rose in all major sectors, with an upturn in the large services sector particularly welcome," said Chris Williamson of London-based Markit. But with confidence indicators widely understood as important pointers as to how the economy will perform going forward, the latest figures suggested that optimism is gaining ground, pulled by Germany in particular. The index for all 27 members of the European Union also rose by 1.4 points to 90.6 points. In the eurozone, the sector of activity where confidence rose most was the construction industry for which the indicator gained 4.6 points. This reflected orders taken and expectations concerning the need for labour. Confidence in the services sector rose by 1.0 point. However, for industry and the retail sector, the indicators were flat. The data showed a tantalising suggestion that domestic demand may show signs of reviving as the reading for confidence expressed by consumers rose by 2.4 points in January. But Williamson noted that the marginal gain in the retail sector was "a reminder that consumers remain under pressure from high unemployment, squeezed incomes and uncertainty about the financial outlook." He said "any substantial upturn in domestic demand, especially from households, is unlikely to occur any time soon and is therefore unlikely to help drive economic recovery." Sentiment about the outlook for employment was less pessimistic in all sectors of activity than has been the case, both in the eurozone and in the European Union. In the eurozone, confidence rose the most in Germany by 2.5 points, in the Netherlands by 1.0 point, and in Spain by 0.5 points. In Italy it was steady and in France it slipped by 0.3 points. All told, for IHS Global Insight analyst Howard Archer, the Commission's data "adds to the evidence that eurozone economic activity bottomed out around last October and growth prospects are brightening," thanks to the "reduced eurozone sovereign debt tensions and improved financial markets." The drawback for Archer is the same, though. It will be "hard seeing consumers significantly stepping up their spending appreciably in the near term at least in many countries." However, France again logged a fall -- Ben May of Capital Economics noting that the gap between Germany and France is one these hardline London-based analysts expect to widen. Warning it "remains too early" to tip sustained recovery, he maintained that "on past form," Wednesday's data "still points to annual falls in GDP of more than one percent."