Eurozone optimism but the north-south divide lingers

The confidence of business managers polled by the European Commission rose for its fourth successive month in the eurozone, the EU executive said yesterday. The positive trend was particularly strong in Germany and the Netherlands but was also seen in Italy, France and Spain.

Tom Vosa, chief economist at Yorkshire Bank, said the survey suggested that the single currency area is continuing to emerge from recession.

He added: “We should see some acceleration in the annual growth rate during the third quarter.”

The measure of sentiment across the 17 countries in the currency bloc in August, based on business orders, industrial confidence and other factors such as companies’ hiring plans, increased by 2.7 points to 95.2.

The findings led Dirk Schumacher, an economist with Goldman Sachs, to declare that “the most acute phase of the crisis and the toughest period of belt-tightening is behind us”.

But while morale improved, unemployment in the eurozone in July remained at a record high of 12.1 per cent, with the sharp contrast between countries such as Germany and Spain, showing that the upswing is not being felt everywhere.

“It would be the most dim-witted thing you could do to declare that the crisis is over,” said Juergen Fitschen, the co-chief executive of Germany’s flagship Deutsche Bank.

While just over 5 per cent of workers in Germany were unemployed, according to the European Union’s statistics agency, that figure reached almost 28 per cent in Greece and was over 26 per cent in Spain.

Although there were 15,000 fewer people in the eurozone without a job compared with the previous month, 3.5 million people under 25 remain unemployed.

“We haven’t broken the negative dynamic in the south of Europe,” said Brussels think tank Bruegel.

It added that banking fragility, weak growth and high unemployment still present a threat.

Mr Vosa said: “As long as the eurozone unemployment rate remains around its record 12.1 per cent, which it did in July, then the economic recovery in the eurozone remains fragile, and we suspect overly dependent on events in Germany.”

In a separate release, the statistics agency said annual consumer price inflation in August would be 1.3 per cent, down from 1.6 per cent due to a drop in energy prices. A lack of price pressures is a further potential boon to the economy, as households have a little more spending power, and allows the European Central Bank to stick to its lower interest rate policy.