European confidence rises to two-year high on exports

Written by Bloomberg | Updated: Sep 1 2010, 04:43am hrs
European confidence in the economic outlook improved to the highest in more than two years in August after exports helped the economy expand at the fastest pace in four years in the second quarter.

An index of executive and consumer sentiment in the 16 euro nations rose to 101.8 from a revised 101.1 in July, the European Commission in Brussels said on Monday. Thats the highest since March 2008 and exceeded economists forecast for an increase to 101.6, based on the median of 28 estimates in a Bloomberg News survey.

European confidence may falter as the global recovery shows signs of weakening and governments step up spending cuts to trim budget deficits. The US economy expanded less than initially anticipated in the second quarter and growth in Europes services and manufacturing industries slowed this month.

Theres no reason why the euro region would be able to decouple from a global slowdown, said David Kohl, deputy chief economist at Julius Baer Group in Frankfurt. At the same time, were facing a period of fiscal consolidation across Europe, which will weigh on growth. It will be a bumpy road.

The euro remained lower against the dollar after the report, and was down 0.3% to $1.2719 as of 10:05 am in London. Bonds stayed higher, with the yield on the 10-year German bund down 4 bps to 2.16%.

A gauge of confidence among consumers rose to minus 11 in August from minus 14 the previous month, Mondays report showed. Manufacturing sentiment held at minus 4 and construction confidence remained at minus 29. Confidence within the service industries rose to 7 from 6.

The index is based on a survey of 130,000 executives and 40,000 consumers conducted in the first two weeks of the month. European manufacturers have relied on faster-growing emerging economies to fuel earnings as households held back spending.