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Euro zone economy shows glimmer of optimism in November

By Amanda Cooper

European Commission’s economic sentiment indicator rises as consumers and businesses feel more confident

The Euro zone economy showed signs of improvement this month, after a broad measure of confidence rose and an indicator of the health of the financial system picked up.

The European Commission’s economic sentiment indicator for November rose by 0.5 points to 101.3. This rise was above the expected reading of 101.0, but did not offset last month’s decline to a four-year low.

ING chief Euro zone economist Peter Vande Houte said: “The latest batch of data gives the feeling that the economy is still in some kind of purgatory, with the jury still out as to whether the next phase will be heaven or hell. The good news is that the Euro zone economy doesn’t seem to be weakening any further. But that doesn’t mean that a strong upturn is in the offing, certainly not in the short-term.”

The economic sentiment indicator showed improved confidence almost across the board, with manufacturers, consumers, service providers and retailers all reporting a pick-up. However, sentiment among constructors declined sharply.

Vande Houte said that while this was positive, there was “no reason to get over-excited just yet”.

“Despite the increase in economic sentiment in November, we are still below September’s level. The more cyclical business climate indicator even decreased to -0.23 from -0.20 in October. This chimes with a further fall in the assessment of order books in the industrial sector,” he wrote in a research note.

A separate report from the European Central Bank reinforced the greater confidence among consumers, as household loans grew by 3.5 per cent in October to €6.18tr (£5.26tr) compared with the same month last year, and after a 3.4-per cent rise in September.

The increase, in line with market expectations, was the largest yearly increase in household lending since January 2009, according to data from TradingEconomics.

Further ECB data showed growth in M1 money supply – the amount of hard currency, such as cash and coins in circulation, plus other sources of liquidity such as balances in current and savings accounts – rose to 8.4 per cent in October, from 7.9 percent in September.

Economists say M1 can be a fairly reliable leading indicator of economic growth. The ECB has held its benchmark refinancing rate at 0 per cent since early 2016, and cut the rate it will charge banks to hold deposits within the Eurosystem overnight to -0.5 per cent, to shield the regional economy and promote lending to businesses and consumers.

FURTHER READING: Eurozone economic growth set to slow

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