Eurozone sentiment lifts hopes of recovery

The European Commission’s economic sentiment index rose to 89.2 points in January from 87.8 points in December, against market expectations of an improvement to 88.2.

“The third successive, and appreciable, rise in eurozone economic sentiment to be at a seven-month high in January adds to the evidence that eurozone economic activity bottomed out around last October and growth prospects are brightening,” said Howard Archer, economist at IHS Global Insight.

“Reduced eurozone sovereign debt tensions and improved financial markets are clearly boosting sentiment overall, but it remains to be seen to what extent and how quickly this will feed through to boost eurozone economic activity,” he said.

Separately, the Commission’s Business Climate Index – which points to the phase of the business cycle – also rose, to -1.09 points from -1.11 in December. Both indices have been improving since October where they reached low points.

“Overall, the series of positive surprises on eurozone survey releases in January support our growth scenario,” said Evelyn Herrmann, European Economist at BNP Paribas.

“While eurozone leading indicators are still at levels in line with contraction in overall economic activity in the eurozone, their upward trend supports our forecast of a slowdown in the pace of contraction from -0.4 per cent q/q in Q4 2012 to -0.1 per cent in Q1 2013 in the eurozone GDP aggregate,” she said.

The Commission data released yesterday showed sentiment improved the most among consumers and in construction, but also in services – the biggest sector of the eurozone economy, which generates two-thirds of the single currency area’s GDP.

Sentiment was also more upbeat in industry and the retail trade.