Reply #14: Optimism grows on European economy [View All]

http://today.reuters.co.uk/news/newsArticle.aspx?type=reutersEdge&storyID=2006-03-06T102418Z_01_NOA637192_RTRUKOC_0_ANALYSIS-EUROPE-ECONOMY.xml

PARIS (Reuters) - Oil prices are high and interest rates are rising, but the euro zone's economy appears to be accelerating in spite of it all.

How strongly or for how long is another question, but for now the recovery story has the upper hand.

Two monthly surveys of companies published this week showed a further heating up of activity in the manufacturing and service sectors in February, reinforcing a recovery scenario of which most economists are already pretty confident.

A week earlier Germany's Ifo survey of business morale hit a 14-year high, apparently unrestrained by oil prices which are above $60 a barrel and heading upwards again.

If a note of caution was needed, Italy provided it this week when it announced zero economic growth for 2005, following news of zero German growth in the last three months of the year and not much better in France or the euro zone as a whole.

"I don't think this is another false dawn but what we have here is another reminder that the incipient recovery remains very fragile," said Jean-Michel Six, chief European economist at credit rating agency Standard & Poor's.

BEG TO DIFFER

Many economists share his measured optimism, the more so since publication on Friday of the NTC research company's index on the of euro zone service sector, which showed growth at a 5-year high. A similar survey on manufacturing was upbeat too.

There are doubters, however, who believe forecasters are too fast to forget that high-frequency indicators have done the same thing in the past without any lasting improvement in the economy.

"We've been there before," said Ronald Janssen, senior economist at the European Trade Union Confederation (ETUC). "At end 2001/beginning 2002 and beginning 2004, business confidence indicators also picked up but the recovery that resulted was short-lived."

ETUC's equivalent on the employer side, UNICE, sounded a cautious note too after the European Central Bank raised euro zone interest rates for a second time in three months on Thursday, to 2.50 percent.

"UNICE's forthcoming spring economic outlook (report) ... will show that the momentum of the ongoing recovery is fragile and that inflationary pressures should remain contained over the next two years," the UNICE federation said.

Euro zone growth slid to 0.3 percent in the last three months of 2005 from 0.6 percent quarter-on-quarter growth in the July-September period, the strongest quarter of what was a weaker year overall with 1.3 percent growth.

...more...