Eurozone Business Optimism Wanes Despite French Rally -- 2nd Update

By Paul Hannon and William Horobin Features Dow Jones Newswires

Eurozone businesses were less upbeat about their prospects in May, despite a boost to optimism in France after centrist Emmanuel Macron defeated anti-euro candidate Marine Le Pen in presidential elections.

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The European Commission said Tuesday its Economic Sentiment Indicator, which aggregates business and consumer confidence, fell to 109.2 in May from 109.7 in April. That was a surprise, since economists surveyed by The Wall Street Journal last week had expected a rise to a postcrisis high of 110.0.

The softening of sentiment serves as a reminder that while some indicators of economic activity have picked up in 2017, there are no conclusive signs of a significant acceleration of growth.

Confidence weakened in Germany, Italy and the Netherlands which could reinforce the caution expressed by most European Central Bank policy makers, who have signaled a reluctance to wind down the bank's massive stimulus programs.

"Of course, one has to make sure that this [the currency bloc's brighter economic outlook] is something that is going to last," Ewald Nowotny, who sits on the ECB's governing council, said in a speech Monday.

There were signs of optimism in other parts of the eurozone economy. Manufacturers were more upbeat than at any time since June 2011 and French consumer confidence reached the highest level in almost a decade, as households became more confident about their future financial situation. On May 7, Mr. Macron won the French presidential election, defeating National Front candidate Ms. Le Pen, whose pledge to pull France from the eurozone had worried many voters and businesses.

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French businesses were also encouraged by the outcome of the country's presidential election earlier this month, and France's ESI hit its highest level since mid-2011.

Also Tuesday, the French statistical agency raised its estimate for quarter-to-quarter economic growth in the first three months of the year to 0.4% from 0.3%.

"The French economy is set to see an acceleration in growth this year, and probably even more so next year, compared to the modest GDP growth rate reached in 2016," said Olivier Vigna, an economist at HSBC in Paris.

At the ECB, caution is founded on a worry that the eurozone's recovery hasn't yet been strong enough to deliver a sustained boost to inflation. The annual rate of inflation hit the central bank's target of just below 2% in April, but that was largely due to rises in prices of vacation services around Easter. Figures released Tuesday by Germany, Spain and Belgium suggest the eurozone's inflation rate fell back again in May.

Germany's statistics agency said consumer prices were up 1.4% on the year in May when calculated using the eurozone's common measure. That marked a sharper-than-expected fall from the 2% rate of inflation recorded by the eurozone's largest member in April. Figures for the eurozone as a whole will be released Wednesday.

Write to Paul Hannon at paul.hannon@wsj.com and William Horobin at William.Horobin@wsj.com

(END) Dow Jones Newswires

May 30, 2017 08:51 ET (12:51 GMT)