Eurozone Confidence Hits Post-Crisis High

By Paul Hannon Features Dow Jones Newswires

Eurozone businesses and consumers became more optimistic in June about their prospects than at any time since before the global financial crisis, reflecting a pickup in economic growth and the rejection by voters of parties hostile to the European Union in recent elections.

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The surprisingly strong rise in confidence recorded by a monthly survey should aid the eurozone's economic recovery, since businesses and households are likely to spend more freely. That in turn increases the likelihood that the European Central Bank will soon consider the withdrawal of some of the stimulus to economic growth that it has provided since mid-2014.

The European Commission Thursday said its Economic Sentiment Indicator, which aggregates business and consumer confidence, jumped to 111.1 in June from 109.2 in May, reaching its highest level since August 2007, more than a year before the start of the financial crisis. Economists surveyed by The Wall Street Journal last week had expected a more modest rise to 109.5.

The rise was aided by France, where the national measure rose to 109.8 from 107.6 in May, a response to Emmanuel Macron's victory in last month's presidential elections, and the strong showing of his party in subsequent legislative polls. The pro-EU centrist has pledged to remake the country's decades-old labor regulations and give the eurozone's second-biggest economy the vigor it has long lacked.

But other large eurozone members also saw big jumps, including Germany and Spain.

The pickup in confidence has coincided with a period of renewed optimism about the future of the European Union. Pessimism about the bloc's prospects gained ground in the wake of the financial crisis, and revived again last year as Britons voted to go their own way in the Brexit vote.

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But the first half of this year has seen a change in outlook, with the Commission's Eurobarometer survey--which takes place twice a year--recording that 56% of the 28,007 people questioned between May 20 and May 30 declared themselves optimistic, the highest proportion since early 2015.

That revival is something of a surprise. Coming into 2017, nationalist political parties that were hostile to both the bloc and the euro appeared to have momentum, while the U.K.'s Brexit vote was a major blow.

However, those anti-euro forces failed to make a great deal of headway, evidence that hostility to the EU has its limits in terms of voter appeal, while a firming of the eurozone's recovery and a continuing fall in unemployment has helped. According to the Eurobarometer survey, 46% of those questioned described the EU's economic situation as "good", the highest proportion since before the global financial crisis.

The ECB has referenced the return of optimism as one reason for its improved view of the eurozone's economic prospects. In a speech Tuesday, ECB President Mario Draghi hinted that policy makers ECB might start winding down its stimulus in response to accelerating growth in Europe.

However, inflation is expected to remain below the central bank's target of just below 2% over coming years, and the one part of the Commission's monthly survey that didn't show fresh strength were a series of queries on expected inflation. They recorded that the rate of price increases expected by households and businesses over the coming year remained little changed.

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

(END) Dow Jones Newswires

June 29, 2017 05:22 ET (09:22 GMT)