Eurozone economic sentiment improved in April, for the first time since May 2007, from a record low, a survey conducted by the European Commission showed Wednesday.
Economic sentiment rose to 67.2 in April from a revised reading of 64.7 in March, the first increase since May 2007. The index stood above the expected reading of 65.6.
The rebound in the index resulted from a clear improvement in sentiment in industry and among consumers. Industrial confidence climbed to minus 35 from minus 38 in the prior month, while consumer confidence stood at minus 31, up from minus 34. Economists were looking a reading of minus 36 for industrial sentiment and minus 33 for consumer confidence.
In April, services confidence also showed improvement, which moved up slightly to minus 24. The index reading matched economists' expectations. But retailers' sentiment fell to minus 19 from minus 17 in March.
In the EU, the economic sentiment index climbed 3.5 points to 63.9 in April. This was also the first pick up in two years. The survey found that sentiment improved in most of the member states. Italy, the UK, the Netherlands, Spain and Poland reported significant increases, while France and Germany experienced only slight improvement.
The financial services confidence that is not included in the economic sentiment index rose 16 points in the euro area. Managers' assessment of business situation and demand for their services augmented significantly. Expectations of future demand also recorded a strong gain and became positive for the fist time since October 2008.
The quarterly manufacturing survey conducted in April revealed a further decrease in Eurozone's capacity utilization to 70.5%, the lowest since 1990. At the same time, new orders received in the last three months and expectations about export orders in the coming three months improved marginally.
A half yearly industrial investment survey found that managers in most member states forecast a sharp fall in their investment volumes in 2009. Real investment is predicted to fall 20% in the Eurozone.
Separately, the European Commission said euro area's business confidence rose to minus 3.33 in April from minus 3.49 in March. Economists were expecting a reading of minus 3.53.
The rise in the business climate index reflects an improving situation in most of its underlying components. Managers' production expectations and the production trend observed in recent months improved. Meanwhile, their assessment of current overall order books and stocks of finished goods recovered marginally from previous month's level.
Commenting on the survey, Christoph Weil, an analyst at Commerzbank said the economic sentiment index appears to follow the lead of the purchasing managers' indices and changing direction. But, these indicators are not heralding the end of the recession, the economist added. The eurozone economy is likely to continue its decline until the autumn, when the central bank's generous rate cuts and the various stimulus packages begin to take effect, Weil noted.
Economists forecast the economy to shrink 4.5% over the year and see GDP to stagnate next year on average. The European Central Bank is expected to cut its key interest rate next week by 25 basis points to 1% and extend the maturity periods for tender transactions.
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