Optimism over EU economy increases

European businesses and consumers expressed more optimism about the economy for the fifth month in a row in August, but their sentiments are still well below their average level from before the financial and economic crisis, an EU survey has shown.

The report, published by the European Commission on Friday (31 August), seems to confirm the prevailing view that the 27-strong bloc's economy has hit bottom and is now embarking on a slow path to recovery.

The Economic Sentiment Indicator (ESI) improved significantly both for the EU as a whole, by 5.9 points, and for the 16-member eurozone, by 4.6 points, to 80.9 and 80.6 respectively, marking the fifth consecutive increase since March.

The more positive expectations from industry stemmed from manufacturers' check-up of their order books for the coming months, with encouraging signals coming from all sectors with only retail trade proving sluggish in the eurozone.

More favourable trends were present in most EU member states, mainly in the UK, the Netherlands and Germany, followed by Poland, Italy and Spain, all among the top economies influencing the performance of the whole bloc.

However, Brussels experts point out that despite the improvements, stocks of finished goods and production expectations remained "well below their long-term averages," which is 100 points in ESI calculations.

The fresh commission data are due to be considered by the European Central Bank, gathering this week. Analysts predict that the Frankfurt-based bank will keep the interest rates at its current historic minimum of one percent.

"Central bankers will be facing a somewhat changed economic environment: the worst is over and the economy is stabilising," Carsten Brzeski at Global Economics told AFP agency, warning however: "The labour market and a possible credit crunch are clear speed bumps on the road to recovery."

Germany and France technically stepped out of recession last month and the same is expected for the whole euro area during the third quarter of this year, but the prospects for a more steady recovery are still weak, several economists suggest.