Table: Story:

KEY DATA

EMU-16 record record
NOV OCT SEPT low (mo/yr) high(mo/yr)
OVERALL SENTIMENT 88.8 86.1 82.8 64.6 (03/09) 117.1(05/00)

MARKET REACTION

ECONOMIST COMMENTS

NICK KOUNIS, FORTIS:

"This indicator tends to lag developments in the PMI surveys and actual economic growth and still has some room to rise (to around 95.0) just to be consistent with the 0.4 percent QoQ rise in GDP we saw in Q3. So this survey does not really provide any new information but just adds to existing evidence suggesting that the economy has embarked on a moderate and gradual recovery.

"A positive note within the report was a further rise in consumer confidence. It rose to -17 from -18 in October. The improvement is being driven by increased optimism among households about the general economic outlook. This points to scope for a fall in the savings ratio in the coming quarters as it had previously risen sharply on the back of consumer worries about the economy.

"A fall in household saving could help to partially cushion the ongoing impact on consumer demand of rising unemployment and slowing wage growth. But the overall picture will be one of lacklustre consumer demand for some time to come."

HOWARD ARCHER, IHS GLOBAL INSIGHT:

"It is evident that both businesses and consumers are becoming less gloomy over the current state of the economy and are markedly more upbeat over recovery prospects. Companies are also generally happier over their order books and stock levels, less downbeat about their recent business and more upbeat over production expectations. As a result, employment expectations are becoming less negative, although they are still relatively depressed.

"However, the improvement in consumer confidence in November was limited by them becoming a little more worried about unemployment over the coming year. Consumers' inflation expectations rose modestly in November but were still at one of the lowest levels in the surveys' history.

"Meanwhile, the selling-price expectations of manufacturers, service companies and retailers all remained very low compared to long-term norms. This reinforces belief that underlying inflationary pressures remain very weak and supports the view ... that euro zone consumer price inflation is likely to substantially undershoot its target of 'close to, but just below 2.0 percent' for an extended period.

"The further marked improvement in overall euro zone economic sentiment in November suggests that the euro zone is on track to at least match the third quarter's 0.4 percent quarter-on-quarter expansion in the fourth quarter.

"Nevertheless, both business and consumer confidence are still at relatively low levels compared to long-term norms which suggests that businesses will remain cautious in their employment and investment plans for some time to come, while consumers will be reluctant to splash out.

"Meanwhile, the European Commission's survey points to still very low consumer inflation expectations and muted selling-price expectations of companies. Consequently, there is a strong case for the ECB to only very gradually withdraw its emergency liquidity measures, and to keep interest rates down at 1.00 percent until deep into 2010."

JENNIFER MCKEOWN, CAPITAL ECONOMICS:

"November's ... business and consumer survey adds to the evidence of a continued recovery in the euro zone, with a further increase in consumer confidence bringing hope that households might soon start to spend.

"The rise in the economy-wide Economic Sentiment Indicator (ESI), from 86.1 to 88.8, was a little sharper than expected (consensus 87.7) and left it at its highest since September 2008. The index now points to a sharp pick-up in annual GDP growth to nearly -0.5 percent from Q3's -4.1 percent.

"The improvement was broadly based, with service sector and industrial sentiment rising again. Although the latter remains far below its long-run average, it points to a sharp increase in annual industrial production growth from recent deeply negative rates.

"The further rise in consumer sentiment comes as a particular relief after the fall in the German national index. But note that, despite rising again this month, inflation expectations remain close to record lows. The economy is recovering, but after such a severe recession, the threat of deflation will linger for some time."

GIADA GIANI, CITIGROUP:

"The figures are on the stronger side of the consensus. They do suggest that the economic recovery is gathering pace.

"The pace of improvement in economic sentiment indicators has not slowed down in Q4 as many were fearing. It is keeping up quite well.

"GDP growth may accelerate in Q4, relative to Q3. We are looking at something like 0.6-0.7.

"Then there is likely to be a slowdown in Q1.

"The ECB is likely to revise up its growth forecast for 2010."

LINKS

For further details, Reuters 3000 Xtra users can click on: http://europa.eu.int/comm/eurostat/

For a one-page snapshot of real-time G7, euro zone and Swiss economic data releases, click on Keywords: EUROZONE ECONOMY/SENTIMENT (Brussels newsroom, tel +32-2-287-6830, fax +32-2-230-5573, e-mail: brussels.newsroom@reuters.com)

COPYRIGHT

Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.