Euro zone economic sentiment increased more than expected in March, lifted by a brighter outlook for industry, data showed today, pointing to a stronger pace of economic recovery.
A European Commission survey also showed that continued economic recovery from the worst economic crisis in decades had boosted inflation expectations, albeit from a low level.
The survey said sentiment in the 16 countries using the euro had grown to 97.7 points from 95.9 in February against market expectations of a rise to 97.2.
"It's visible that the improvement in the industrial sector is leading the recovery and we expect further increases in coming months in the overall reading," said Juergen Michels, analyst at Citigroup.
Carsten Brzeski of ING said: "It simply indicates that the recovery is gaining pace and gaining traction and what we saw at the turn of the year was just a temporary blip and not a new trend and we now see that the underlying fundamentals of the recovery are relatively strong."
The gain was fuelled by manufacturers experiencing stronger demand, with sentiment in industry improving to -10 in March from -13 points in the previous month.
But private demand remained weak as the consumer sentiment indicator stagnated at -17. In the services sector, it stayed flat at 1 and increased to -6 from -8 in the retail sector.
Analysts say that recovery will not become self-sustained unless consumers begin to spend more. So far, the euro zone's economic upturn has relied mainly on exports.
"But both service sector and consumer sentiment were flat, suggesting that the recovery is still not spreading to the domestic economy," said Jennifer Mckeown, analyst at Capital Economics.
The revival began to fuel inflation expectations among consumers for the first time in many months.
The Commission said the indicator of consumer inflation expectations, which the European Central Bank monitors for its policy decisions, rose to 4 from 0 in February, suggesting households started to expect that prices will rise.
In industry, selling-price expectations increased to -1 from -4.
The ECB is expected to keep its main rate unchanged at the historic low of 1.0 per cent until late 2010.
The Commission's business climate indicator, which points to the phase of the business cycle, rose more than expected to -0.32 in March from a revised -0.65 in February.
"The rebound of the indicators suggests that economic activity in the industry sector will continue to recover in the coming months, although it has still some way to go to reach its pre-crisis level," the Commission said in a statement.
Reuters