RTTNews - In a further sign that the worst of the recession would be over soon, Eurozone economic sentiment rose more than expected in June, a closely watched survey revealed Monday.
The economic sentiment indicator rose to 73.3 from upwardly revised 70.2 recorded in May, results of the latest business and consumer survey conducted by the European Commission showed. Meanwhile, economists had expected the index to rise to 71 from May's initially reported reading of 69.3. The sentiment index rose for the third straight month.
The improvement in the confidence index Fuels hope that the Eurozone economy is gradually finding a hold. But the data do not shed any light on the strength of the forthcoming recovery, Commerzbank analyst Christoph Weil said.
A gauge for consumer sentiment rose to minus 25 in June from upwardly revised minus 28 in May and the indicator for services sector climbed to minus 20 from minus 23. Similarly, the industrial confidence indicator improved to minus 32 from minus 33. Confidence indicators for these three sectors of the economy rose for the third consecutive month in June.
At the same time, the confidence indicator for the retail sector dropped to minus 16 from minus 14, reversing the trend seen in the previous month. The measure for confidence in the construction sector remained unchanged at minus 34.
The economic sentiment indicator for the EU also rose for the third month in a row. The reading rose to 71.1 from 67.9 supported by increases in all sub-indicators except retail sector, where sentiment remained unchanged from May.
The European Commission said majority of Member States registered an improvement in June. Among the largest Member States, France, Germany and the U.K. recorded significant increases in sentiment, while the rise was less marked in Poland, Spain, the Netherlands and Italy.
A separate survey from the Commission showed that the business climate index for the euro area increased slightly to minus 2.97 from a revised reading of minus 3.11 in May, suggesting that annual growth in industrial production would be negative in May and would remain subdued in June.
The increase in the business climate indicator was driven by improvements in participants' production expectations and opinion of stocks of finished goods. Contrastingly, assessment regarding total order and export orders continued to worsen to reach fresh lows.
The European Central Bank or ECB has implemented various measures to support economic activities and to restore confidences amid financial crisis. For the smooth supply of credits, the bank injected billions of euros into banking system. On June 24, the ECB has made a record EUR 442 billion to banks for 12 months, the biggest amount it has ever given in a single auction.
The Commerzbank analyst said the ECB, which lowered its key interest rate to a record low of 1%, will not respond to the rising sentiment indicators by quickly changing it's course.
We believe the ECB will not start to hike the key interest rate until the fourth quarter of 2010. Scope for a continued hugely expansionary monetary policy is also given by the inflation rate in June, which has probably dipped into negative territory, Weil said.
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