Euro-area economic sentiment improves as ECB set to commence QE

Economic sentiment in the euro area rose for a second month in February as strong growth in Germany and the European Central Bank’s quantitative-easing program outweighed concern about the future of Greece.

An index of executive and consumer confidence climbed to 102.1 from a revised 101.4 the previous month, the European Commission in Brussels said on Thursday. That’s the highest since July. Economists had forecast an increase to 102, according to the median of 26 estimates in a Bloomberg News survey.

A standoff between the Greek government and its creditors over the terms of the nation’s bailout threatened to derail optimism as the ECB prepared to inject 1.1 trillion euros ($1.3 trillion) to underpin growth and fend off deflation in the euro area. The central bank will issue new economic forecasts on March 5.

“The ECB’s quantitative-easing program adds to tentative signs of a recovery, helped by falling oil prices and a weaker euro,” said Anatoli Annenkov, senior economist at Societe Generale SA in London. “The Greek question hasn’t gone away completely, but the fact that the market has held up shows there’s some resilience in the European economy.”

Industrial confidence rose to minus 4.7 from minus 4.8 in January, the Commission said. Sentiment in retail trade and among consumers increased to minus 6.7, while confidence in the services sector declined and construction sentiment was unchanged, according to today’s report.

Better Outlook

“There has been a stabilization in confidence across the board,” said Natascha Gewaltig, director of European economics at Action Economics UK Ltd. in London. “The outlook has improved, particularly as a result of stronger-than-expected growth in Germany and an uptick in the periphery.”

The German economy, which flirted with recession last year, grew 0.7 percent in the fourth quarter, driven by strong domestic demand and rising exports. Economic momentum in Europe’s powerhouse coincides with an improving outlook for the periphery.

As French growth slowed and Italy’s economy stagnated, the Portuguese expanded at the fastest pace in a year in the three months to December, beating analyst estimates. Meanwhile, Spain has posted six consecutive quarters of growth after gross domestic product increased 0.7 percent at the end of 2014.

“The short-term outlook looks much better than it did six months ago, due to lower oil prices and accommodative monetary policy from the ECB,” said Silvio Peruzzo, senior European economist at Nomura International. “But structural damage as a result of the crisis in the periphery is substantial, unemployment in countries like Spain remains high and we’re yet to see strong wage growth.”