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Brussles - A surge in confidence in Europe's economy fuelled hope on Thursday that the region is finally overcoming its financial troubles just days after European banks largely survived a crash test.
The Economic Sentiment Indicator produced by the European Commission soared in July to its highest level in more than two years, driven by eurozone powerhouse Germany, improved order books and optimism among consumers.
"July's sharper-than-expected increase in economic sentiment will further allay fears of a near-term double dip recession in the eurozone and may give fresh support to the euro," Dutch banking group ING said in a note.
The European Commission said sentiment in industry was the "main contributor to the overall improvement," with an increase of two points as respondents in the sector reported "substantial improvements in their order books."
Consumer confidence "regained momentum" with a 3.0-point jump in the euro area, the European Union's executive arm said.
"More optimism about the general economic situation and very significant easing unemployment fears in Germany contributed to the overall improvement," the commission said.
The data helped to drive the euro on Thursday to its highest level against the dollar since May.
But the results were uneven across the 16-nation eurozone, pointing to persistent weakness in southern countries beset by a fiscal crisis that has rattled the single currency, analysts said.
"July's improvement in the EC consumer and business surveys adds to the evidence that the eurozone is performing surprisingly well but with stark divergences between countries," said Jennifer McKeown, senior European economist at market research group Capital Economics.
Business and consumer confidence jumped by 2.3 points to 101.3 points in the single currency area in July, the highest level recorded since March 2008, before the global slump began to really bite.
The rise was led by a 4.0-point gain in Germany followed by increases of 2.2 points in France, 1.9 points in Poland and 1.7 points in Italy, the commission said.
In contrast, sentiment was down in Spain as it dropped by 2.2 points in the last European country to emerge from recession.
Spain, Portugal and Greece have launched austerity programmes to bring down huge public deficits that have unnerved investors, raised their borrowing costs and sparked a crisis of confidence in the euro.
Europe's debt drama forced the bloc to bail out Greece and launch a €750bn financial safety net with the International Monetary Fund for other states that may need help in the future.
The crisis fuelled concerns about the exposure of European banks to bad sovereign debt, prompting governments to conduct "stress tests" on the health of 91 banks accounting for 65% of the bloc's banking system.
The results, released last Friday, showed that only seven banks - five in Spain and one each in Germany and Greece - failed the tests, which were designed to show if they could withstand another economic recession coupled with steep losses on loans, stocks and government bonds.
Europe got a fresh boost last week as a leading indicator of economic activity, the purchasing managers' index for the eurozone, accelerated for the first time in three months in July.
This was followed by surprisingly strong German and British economic data.
The Ifo institute's index of German business sentiment posted the strongest rise for 20 years in July.
And Britain, which is outside the eurozone, rebounded with growth of 1.1% in the second quarter as it recovered sharply from a record recession and faced up to tough government spending cuts to balance the public finances.
Economists had expected a gain of 0.6% after 0.3% in the first quarter.
- AFP
