LONDON, Sept 30 - A raft of economic reports on Tuesday showed increasing optimism about the future of the languishing European economy but little sign of actual improvement on the ground. Hard data from Germany, France and Spain painted a picture of weak sales, poor jobs conditions and sliding industrial orders while sentiment indicators pointed to a brighter future for the rest of the year. It was a repeat of a story that has been playing for months. "For some time now we have seen improved sentiment," said Jodie Saul, assistant economist at CIBC World Markets in London. "However, we remain rather cautious, as these improved surveys have still not fed through positively into the core data."
Topping the optimism side of the balance sheet was the European Commission's quarterly report on the 12-member euro zone economy which saw recovery on the cards despite risks in the form a stronger currency that could stifle exports. "Following three years of low growth in the euro area, the first green shoots of recovery are appearing," said European Monetary Affairs Commissioner Pedro Solbes. A similar picture came from the Commission's economic sentiment indicator, which reached a 2003 high in September, and from France's business confidence index, which rose slightly in the month. But ranged against that was the hard data. French growth shrank more than at first thought in the first quarter; Spain's retail sales growth slowed in August; German wholesale sales fell in August; France's high jobless rate remained stuck. Touching the centre of the euro zone's leading economy, meanwhile, was a report from German engineering association VDMA that plant and equipment orders fell by six percent year-on-year in August.
HOT AND COLD
Some of the poor figures -- such as the Spanish sales -- can at least partially be explained by the hot summer that raged across Europe, disrupting normal business. But analysts see a number of factors causing the euro zone to lag other global economies, notably the rising euro, which is making European exports less attractive. European consumers also seem less keen than their U.S. counterparts to jump on the recovery bandwagon. "At the moment we have more economic activity but it does not spill over into the euro zone because the euro is stronger and domestic demand is still weak," said Klaus Wiener, chief economist at AMB Generali Finanz in Cologne. "We see the euro zone groping towards potential growth until the end of 2004," he said. One bright spot for Europe on Tuesday, meanwhile, was non-euro zone member Britain. The Office for National Statistics reported that gross domestic product grew 0.6 percent in the second quarter, twice as fast as first thought. This, though, was due primarily to much higher than estimated construction output figures from the Department of Trade and Industry.//