Eurozone Construction Booms in February -- Update

By Paul Hannon Features Dow Jones Newswires

Construction of buildings and infrastructure across the eurozone rose at its fastest pace in almost five years during February, while consumer confidence strengthened ahead of a key election in France.

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Both developments are consistent with a number of other signs that the eurozone's modest economic recovery has gathered fresh momentum this year.

The European Union's statistics agency said on Thursday that output in the construction sector jumped 6.9% from January, the largest month-to-month rise since March 2012. Eurostat said output was 7.1% higher than in February 2016, the largest year-to-year gain since April 2014.

The February surge in construction was led by Belgium, home of many of the EU's shared institutions, where output soared by 18.7% from the previous month. The eurozone's largest members also recorded big rises, with German construction up 13.6% and French building up 8.1%.

Building work can be volatile from month to month, but the February surge follows a strong second half to 2016.

As in other developed economies, construction suffered severely after the global financial crisis. But its recovery from that trauma was hindered by the eurozone's subsequent government debt and banking crises, which weakened the confidence needed to embark on new projects, and made the credit needed to fund them scarcer and more expensive.

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As a result, construction activity remains well below its peak before the financial crisis. A sustained revival would be sign that the eurozone's modest recovery is broadening and lifting most parts of the economy, including those that suffered most damage.

The preliminary results of a monthly survey by the European Commission also pointed to a continued pickup in optimism among the eurozone's consumers, despite the possibility of big economic and political changes following upcoming elections.

The Commission Thursday said its monthly measure of consumer sentiment rose to minus 3.6 in April from minus 5.0 in March. Aside from when it hit the same level in March 2015, the measure suggests consumers haven't been as upbeat since mid-2007, more than a year before the onset of the global financial crisis.

The survey comes ahead of the first round of presidential elections in France on April 23. Recent opinion polls suggests Marine Le Pen, who wants to pull France out of the eurozone and the EU, is likely to make it through to a second-round runoff to be held next month.

As the year began, policy makers and economists had feared that an unusually busy, and potentially transformative, series of elections could spook consumers and hit spending. But the resilience of consumer confidence in the face of those potential headwinds should help support what has to date been a modest economic recovery, because more optimistic households tend to spend more.

"There remains a possibility that consumer confidence in the eurozone could be periodically pressurized by political uncertainty and tensions over the coming months," said Howard Archer, an economist at IHS Markit. "This would be particularly the case if there was a shock result in the looming France elections, notably a win for Le Pen. Additionally, there will be an election in Germany in September. Meanwhile, the Italian political situation is fragile. "

Official figures for economic growth during the first quarter will be released on May 3. But even if they do record a pickup in quarter-to-quarter growth from the modest 0.4% rate recorded in the final three months of last year, policy makers at the European Central Bank are likely to remain cautious.

"The economic recovery in the euro area is gaining momentum" and "there may be some upside risk in the very short-term," ECB Chief Economist Peter Praet said Wednesday. But looking farther out, he said the risks are "still tilted to the downside."

Write to Paul Hannon at paul.hannon@wsj.com

(END) Dow Jones Newswires

April 20, 2017 10:55 ET (14:55 GMT)