It's something that hasn't been heard in a long time: good news out of the eurozone. And not just one small area looking slightly better. No, this is a series of improving data points, in more than one area and in more than one country.
The most recent -- and the most encouraging -- is eurozone bank lending, which, in the words of ING bank analyst Teunis Brosens, "is showing signs of life." Loans to households and businesses, adjusted for sales and securitisation, increased by 0.5% year-on-year in January, a faster pace of increase than December's 0.2%, according to data released on Thursday by the European Central Bank (ECB). The annual rate of growth of loans to households, also adjusted for loan sales and securitisation, inched up to 0.9% from December's 0.8%, while the decrease in loans to corporations slowed to 0.9% from 1.1%.
"It is clear that the credit contraction in the eurozone, which lasted for over two years, is ending," Brosens noted. "The pattern is the usual one around economic turning points: lending to household has taken the lead by accelerating over the past few months, while lending to non-financial corporations is lagging the cycle."
M1, a monetary measure that includes cash in circulation and overnight deposits, jumped by 9% in January from December's 7.9% advance, which was already a marked improvement from November's 6.9% expansion. "M1 is one of the best leading indicators of the eurozone business cycle, so this bodes well for growth this year," Brosens predicted.
It is usual for the U.S. economy to be pulled up by consumers, but it looks like this is beginning to happen in Europe too, unlike in other recoveries when the continent was relying more on foreign trade to restore its fortunes. February's European Commission business and consumer survey for the single currency area, also released on Thursday, has shown sentiment edging up to 102.1 from 101.4. This was almost entirely due to an improvement in consumer confidence. By country, the Economic Sentiment Indicator increased in Italy, France and Spain, while declining slightly in Germany and the Netherlands.
But other figures out of Germany indicate a continuation of bullish sentiment. Unemployment in the eurozone's largest economy fell by much more than it had been expected in February, with the total number of jobless people down by 20,000 vs. just 10,000 forecast. This despite the fact that Germany was the European Union's main migration destination, taking in the most workers from elsewhere. Figures released earlier this month shown German consumer confidence at the highest level since October 2001, while a GfK survey shows that Germans' willingness to buy is now at the highest level since December 2006.
The eurozone's second-largest economy France, which has had many market participants worried because of its lack of reforms, has shown signs of what ING analyst Julien Manceaux calls "the start of a virtuous cycle." Data released Wednesday evening show unemployment fell by 19,000 in January, the biggest monthly fall since 2008 when the financial crisis hit with full force. Consumer confidence in France jumped to its highest level since May 2012. "Retailers ... could soon see consumers back in their supermarkets," Manceaux said.
The bears, of course, are not giving up on their gloomy outlook for the eurozone, and after the devastation caused by the debt crisis and numerous false starts to a sustainable recovery, who can blame them? However, even they reluctantly admit that things are not as bad as they used to be.
Albert Edwards, a strategist with Societe Generale, is well known for his bearish views. He notes that eurozone data surprises "have rocketed upwards, wholly offsetting the U.S. data deterioration." But he doesn't believe the eurozone will be "riding to the rescue of the global economy" as the U.S. takes the back stage. "It's more a case that expectations got just so downbeat that even mediocre data has registered a major positive surprise, i.e. if the same data were published in the U.S. it would have been a disappointment relative to expectations," he said.
Edwards may have a point. Indeed, expectations that anything good can come out of the eurozone have been nonexistent for a very long time. This is slowly changing, but for the time being it is a trend that is still very much under the radar. However, if and when it becomes more obvious, it could only act as a fillip to the world economy. And bear in mind that these positive changes are happening even before the ECB has started its own quantitative easing program.
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