LONDON—Businesses and consumers in the 17 nations that share the euro were less pessimistic about their prospects in May, the first improvement in sentiment since February, although one that is unlikely to herald a substantial pickup in economic growth in coming months.
The European Commission Thursday said the headline Economic Sentiment Indicator that aggregates surveys of businesses and consumers across the currency area rose to 89.4 in May from 88.6 in April.
Along with recent surveys of purchasing managers, it suggests that the euro zone may not have contracted as much in the second quarter. If sustained, the pickup in confidence would lead to higher spending by consumers and businesses, and contribute to a return to growth later in the year. But the ESI remains below the 100.00 average level dating back to 1990, and a number of problems still confront consumers and businesses.
"With economic sentiment…starting to turn up again, hopes will be rising that the euro zone could exit recession in the second half of this year," said Martin van Vliet, an economist at ING Bank. "But we shouldn't get overexcited here. With more fiscal austerity in the pipeline—slower austerity still is austerity—unemployment elevated and still rising…consumers and businesses have plenty of reason to remain worried."
The pickup in confidence was spread across the euro zone's five major economies, and was largest in Italy and the Netherlands. Slovakia, Finland and Slovenia were the only euro-zone members to record a decline in confidence.
The Commission's survey found that confidence among most types of business strengthened. The measure for manufacturing companies rose to -13.0 from -13.8 as new orders, including export orders, improved. The measures for service providers and retailers also rose, while those for construction and financial services companies fell.
Consumer confidence also strengthened as workers became less fearful of losing their jobs, although they became more downbeat about the economic outlook over the coming 12 months.
The euro-zone economy contracted in each of the six quarters to the end of March, its longest postwar slump. The Organization for Economic Cooperation and Development Wednesday said it now expects the economy to contract by 0.6% this year, having forecast a contraction of 0.1% in November, and said the European Central Bank should consider cutting its deposit rate below zero and launching a quantitative easing program.
But there are some signs that the inflation rate is once again picking up toward the ECB's target, with figures released Thursday showing consumer prices in Spain rose by 1.8% in the 12 months to April, having risen by 1.5% in the 12 months to May. That followed the release of data Wednesday that showed Germany's annual rate of inflation also picked up, to 1.5% in May from 1.2% in April.
Figures also released Thursday showed Belgium's annual rate of inflation rose for the first time in seven months, to 1.18% in May from 1.00% in April.
The Commission's survey found that most businesses expect to either raise their prices, or cut them less sharply, in the coming months, with the exception of manufacturers. But it also found that consumers expect the inflation rate to fall over the next 12 months.
