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EZ recovery - as good as it looks?

Wednesday, April 23, 2014 - 02:41

April 23 - European consumers are at their most confident in over six years, and the private sector is making a vigorous comeback. Is the pick-up in growth as solid as hoped - and could a strong euro spoil the mood? Joanna Partridge reports.

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The positive numbers keep coming out of the euro zone - but is all as good as it seems? Latest surveys showed the private sector started the second quarter on its strongest footing in nearly three years. The bloc's services industry performed better than expected, although firms continued to cut prices, and manufacturers had a stronger month than forecast. This follows on from improved consumer confidence data. Germany is still leading the bloc's growth, while France disappointed. And that's part of the problem, says Tom Vosa from National Australia Bank. SOUNDBITE: Tom Vosa, National Australia Bank, saying (English): "In terms of getting balanced growth in Europe with the periphery picking up, and with France growing alongside Germany, we're not there yet, we're still reliant on Germany driving most European growth and of course that means that any disruption to German trade with Russia related to the Ukraine could be problematic." Adding to pressure on France to reduce its budget deficit, the country's independent fiscal watchdog has warned the government's 2016 and 2017 growth forecasts are optimistic. Elsewhere in the euro zone, improved sentiment is also helping markets, says Brenda Kelly from IG. SOUNDBITE: Brenda Kelly, Chief Market Analyst, IG, saying (English): "I'm not so sure that a lot of the growth that we're actually seeing in the euro zone is filtering its way down to the real economy just yet. But certainly it does tend to track the equity markets and of course we have seen new highs in the likes of the DAX and the CAC very recently, so I'm not so sure it's a good explanation of what's exactly going on in the euro zone, perhaps it's down to peripheral bond yields coming down to lows not seen since before the euro came into effect." Yields close to eight-year lows for Portugal translated into a successful bond auction - its first in three years. Lisbon easily sold 750 million euros of 10-year-debt at an average yield of just over 3.5%, raising hopes it can make a clean break from its bailout, much like Ireland. But this doesn't ease the pressure on the European Central Bank. Inflation fell for the sixth month in a row in March, remaining in the so-called "danger zone" below 1%. The ECB will also be looking closely at the euro's strength, says Simon Derrick from Bank of NY Mellon. SOUNDBITE: Simon Derrick, Bank of NY Mellon, saying (English): "That will act as a drag across the region, particularly for exporters such as Germany and for France. So I think I actually expect growth forecasts to underperform this year. I also think that the deflation we're seeing in a number of nations will continue to increase and that will just bring further pressure on the ECB to actually take an approach to quantitative easing." And as reporting season continues, several European companies are blaming a strong euro for their disappointing results.

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EZ recovery - as good as it looks?

Wednesday, April 23, 2014 - 02:41