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Eurozone economic sentiment still buoyant

Source: Financial Times - Fri 29th Jan 2010

Economic sentiment in the eurozone is continuing to improve at a sustained rate, according to a closely watched monthly survey released on Thursday, but worrying divergences are emerging between the bloc's healthiest and weakest economies.

The European Commission's "economic sentiment indicator" rose for a tenth consecutive month, up 1.6 points to 95.7, edging towards the long-run average of 100.

Eurozone ministers step up efforts to align economic policy - Jan-18EU seeks audit power over national accounts - Jan-27Greek woes raise fears over eurozone - Jan-25A breakdown of the survey shows that increased bullishness in the industrial sector remained the main contributor to the overall improvement. Capacity utilisation rates are edging up and production expectations are both up from last quarter, driven by decreased levels of inventory.

The cheer is not yet shared by consumers, whose sentiment is unchanged from the end of 2009. High-street spending remains muted by continuing fears of unemployment, which is expected to continue to rise in the coming months across the 16-country bloc. Construction confidence remains near historic lows.

The majority of member states contributed to the uplift, though the trend over several months has been for a chasm to form between the bloc's economies.

A handful of countries, including non-eurozone Sweden and Denmark, are now above the 100 mark, as well as Italy, boosted by the optimism of its shopkeepers. The "core" European countries such as France, Germany and the Netherlands are clustered around the eurozone average.

By contrast, Greece, whose fiscal affairs are under close scrutiny from the Commission, is lagging well behind, at 80 points, in spite of a small rise this month. Spain, Cyprus and to a lesser extent Portugal also remain mired in gloom, as does Luxembourg, weighed down by its reliance on financial services.

Outside the eurozone, the survey outlines a similar trend. "Core" Britain is well on its way to economic optimism, along with its Nordic neighbours. The "peripheral" Baltics and central European states are well behind, though held back by differing factors.

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