Rise Seen in October Eurozone Confidence

Eurozone economic confidence rose more-than-expected in October to its highest level thus far this year, as the region weathered the uncertainty from the ‘Brexit’ vote.

The Commission said the economic sentiment indicator rose to 106.3 in October from 104.9 in September, well above market expectations of a small decline to 104.8.

There was an increase in price expectations across all sectors with the industrial reading at the highest level since 2012, which suggests that underlying pricing power has improved. The increase in inflation expectations is another chink of light for the European Central Bank and undermines potential support for sustained bond purchases by the central bank.

The consumer confidence index improved to -8 as initially estimated from -8.2 in the prior month.

The confidence index for services came in at 12.0 versus 10 in September. The marked rise in services confidence resulted from managers' significantly brighter assessment of past demand and the past business situation.

The industrial confidence indicator climbed to -0.6 from -1.8. Increasing industry confidence resulted from a marked improvement in managers' production expectations and improved assessments of overall order books and the stocks of finished products.

There was increased confidence in the construction sector, while a notable deterioration in the financial sector was noted.

The confidence index for construction rose to -14.3 from -15.6 in the previous month. The marked rise in construction confidence was fueled by upward revisions in managers' employment expectations, while their assessment of the level of order books remained broadly stable.

The business climate index rose marginally to 0.55 in October from 0.44 in September. Managers' production expectations and their assessments of export order books improved sharply.

The business climate index rose marginally to 0.55 in October from 0.44 in September. Managers' production expectations and their assessments of export order books improved sharply.

This information also gives some confidence to the fundamental trends, although the breakdown will still be a source of some surprise as there would have been expectations that consumer demand would have responded more favourably to low interest rates and falling unemployment, while UK concerns do not appear to have damaged the industrial outlook.

“The survey should provide the European Central Bank with some comfort that the recovery has continued”, Jennifer McKeown, an economist at Capital Economics, said.

But with inflation pressures still very weak, the economist suspects that the bank will still extend its asset purchases by six months at the current pace in December.

Eurozone GDP data for the third quarter is due on October 31.