Euro zone economy motors ahead as sentiment stays buoyant

FILE PHOTO: Employees of German car manufacturer Mercedes Benz make final adjustments at the end of the Mercedes A class (A-Klasse) production line at the factory in Rastatt

By Francesco Guarascio

BRUSSELS (Reuters) – Sentiment toward the euro zone economy edged down but stayed buoyant in March, signaling faster growth as inflation expectations among businesses and consumers also rose, EU data showed on Thursday.

The European Commission’s monthly sentiment survey showed the main index dipped to 107.9 points from 108.0 in February, remaining well above its long-term average of 100.

A Reuters poll had pointed to a slight rise to 108.3 points [nL5N1GG1RC], but economists remained upbeat about the 19-country bloc’s growth prospects.

“While this release may have disappointed somewhat, it is still pointing to strength in economic activity,” Bert Colijn, senior economist at ING said.

He noted the figures signaled the first quarter was the bloc’s strongest since 2011, in line with predictions of faster economic growth in the first three months of the year.

Questions remained, however, whether that acceleration would extend into the second quarter.

The euro zone’s economy grew 0.4 percent in the last three months of 2016 on the quarter, and 1.7 percent on the year. Preliminary estimates on the actual growth in the first quarter will be released by the EU statistics office on May 3.

A separate business confidence indicator released on Thursday by the EU Commission was stable at 0.82 points in March, remaining at the highest level since June 2011 but also below market expectations for an increase to 0.86.

Inflation expectations among consumers and manufacturers went up, adding to signs that price pressures are normalizing and fuelling a debate about when the European Central Bank might unwind its monetary stimulus.

The consumer index of price trends over the next 12 months rose to 15.3 points from 14.5 in February, the highest since October 2013, although the pace of the increase slowed down.

“Given that consumers’ inflation expectations are rising only slowly, we nevertheless expect the ECB to continue asset purchases throughout the year and into 2018,” said Stephen Brown, economist at Capital Economics.

European statistics office Euros tat will on Friday release flash estimates of euro zone inflation for March, with economists polled by Reuters expecting 1.8 percent, down from February’s 2 percent and in line with the ECB’s mid-term target of below but close to 2 percent.

The indicator for selling price expectations among manufacturers rose to 9.8 points from 9.0 in February, the highest since July 2011.

The slight dip in overall economic sentiment was mainly due to less optimism in the services sector, the largest part of the euro zone economy and whose index dropped to 12.7 from 13.9 points, and in industry, where it fell to 1.2 points from 1.3.

The drop of confidence in the two main economic sectors of the bloc was partially offset by more optimism among consumers, whose reading rose to -5.0 points from -6.2 points in February.

(Additional reporting by Philip Blenkinsop; editing by John Stonestreet)