Eurozone sentiment and inflation expectations rise in May

Eurozone economic sentiment improved more than expected in May and inflation expectations among consumers and companies rose for the first time since December, European Commission data showed on Wednesday.

Consumer morale rose across the eurozone’s biggest economies, with the notable exception of France, as people became more optimistic about job prospects, savings expectations and the general financial and economic situation, the Commission said.

In Greece, economic sentiment reached its highest level in almost six years, supporting evidence and official forecasts that the country’s severe recession will come to an end this year.

Its monthly economic sentiment index for the 18 countries sharing the euro rose to 102.7 in May from 102.0 in April.

Economists polled by Reuters had expected a rise to 102.2.

Four of the bloc’s biggest five economies saw sentiment improving, led by a rise of 1.3 points in the Netherlands. France, the eurozone’s second-largest economy, registered a decline of 0.4 points to 96.7, data showed.

On the eurozone periphery, Greece’s reading rose to 99.1 points, from 95.4 in April and its highest level since August 2008, the year when the country’s debilitating recession began.

“Consumer and business confidence (in the eurozone) is rising but is still generally diffident about the outlook ahead,» David Brown, analyst at New View Economics, said.

“Uncertainty about global economic prospects, worries about the crisis in Ukraine and the long wait for additional ECB easing have been clouding the recent picture,» he said.

The bloc’s 9.5 billion euro economy posted much weaker-than-expected growth in the first quarter, dragged down by the Netherlands, Italy and France, and analysts were cautious about prospects for the second quarter.

Consumer inflation expectations 12 months’ ahead rose to 9.6 points in May from 7.5 in April, reversing a steady decline seen since January.

Selling price expectations among manufacturers edged up to -1.2 in May from -1.3 in April, but were below -0.7 in March.

Eurozone consumer inflation has been stuck in what the European Central Bank calls the «danger zone» below 1 percent since October, mainly because of falling energy and food prices and the appreciation of the euro.

This creates a risk of deflation, and the ECB has said it stood ready to react as soon as next Thursday.

ECB President Mario Draghi said on Tuesday the bank was aware of the risks from prices remaining too low for too long and the ECB was equipped to get inflation back to its target again.

Separately, the Commission’s business climate indicator, which points to the phase of the business cycle, rose to 0.37 in May from a revised 0.28 in April.

“Managers’ evaluation of past production improved markedly, while production expectations, overall order books and export order books booked more moderate increases,» the Commission said. [Reuters]

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