Confidence in eurozone better than expected

Economic confidence in the euro area increased more than economists forecast in December even as the 17-nation currency bloc remained mired in its second recession in four years.

An index of executive and consumer sentiment rose for a second month to 87 from 85.7 in November, the European Commission in Brussels said today. Economists had forecast an increase to 86.3, according to the median of 24 estimates in a Bloomberg News survey. The unemployment rate in the euro region rose to a record 11.8 percent in November, the European Union’s statistics office said in a separate report.

The improvement in sentiment is in line with strengthening business confidence in Germany, Europe’s largest economy. Still, German factory orders fell more than economists expected in November amid weak demand from outside the euro area.

“We expect the uncertainty emanating from the sovereign debt crisis, which has been hanging like dark clouds over the euro-zone economy, will continue to ease,” said Christoph Weil, an economist at Commerzbank AG in Frankfurt. “From the spring, the economy in the core countries should start to grow again.”

The euro pared gains after the data were released and traded at $1.3119 at 12.25 p.m. in Brussels, little changed on the day.

The euro-area economy shrank 0.1 percent in the third quarter after a 0.2 contraction in the three previous months. Gross domestic product probably fell another 0.3 percent from October through December, according to the median estimate of 22 economists in a Bloomberg survey. The EU is due to publish GDP data for the fourth quarter on Feb. 14.

A gauge of sentiment among European manufacturers improved to minus 14.4 from minus 15 in November, today’s report showed. An indicator of services confidence rose to minus 9.8 from minus 11.9, while consumer sentiment climbed to minus 26.5.

Today’s data “point to a turnaround” with regards to the sovereign debt crisis in the euro area, said Thilo Heidrich, an economist at Deutsche Postbank AG in Bonn. “We expect a slow recovery this year.”

Still, euro-area unemployment continues to climb as the fiscal crisis and tougher austerity measures deepen Europe’s economic troubles. Today’s jobless report showed that 18.8 million people were unemployed in November, up 113,000 from the previous month. At 26.6 percent, Spain had the highest jobless rate in the currency bloc. Germany’s jobless rate was 5.4 percent and France’s stood at 10.5 percent. Austria had the lowest rate at 4.5 percent.

The economic environment will be more difficult this year than in 2012, German Chancellor Angela Merkel said on Dec. 31. Europe’s debt crisis is “far from over,” though progress has been made and the “reforms that we’ve agreed on are starting to take effect,” she said. [Bloomberg]