By Paul Hannon
Businesses and consumers across the eurozone were more upbeat about their prospects at the end of 2016 than at any time since early 2011, an indication that they are as yet untroubled by the prospect of setbacks for establishment political parties as key votes loom in 2017.
The pickup in sentiment, according to a monthly survey by the European Commission, adds to other signs that the eurozone economy gained some momentum in the final quarter of last year. But economists and policy makers worry that heightened uncertainty about the outcome of a series of elections in the Netherlands, France and Germany could lead businesses and households to hold back on spending, thereby weakening an already modest recovery.
The U.K.'s surprise vote to leave the European Union in June, and Donald Trump's unexpected win in November's presidential election have opened up the possibility of further upsets.
"Although the polls at the end of 2016 suggested the mainstream candidates would eventually prevail in the raft of upcoming elections, no one is putting much faith in them after the U.K.'s EU referendum and U.S. election results," economists at HSBC wrote in a research note.
Victory for one or a number of nationalist parties in coming elections could once again raise questions about the survival of the eurozone in its current form, since they are hostile to the single currency.
However, the survey issued by the EU's executive arm on Friday detected little sign of anxiety in December. Its Economic Sentiment Indicator, which aggregates business and consumer confidence, rose to 107.8 from 106.6 in November, reaching its highest level since March 2011.
The national measures for the Netherlands, Germany and France all rose, each to highs last seen more than five years ago.
"This suggests that for now at least, businesses and consumers are brushing off the political uncertainties that face the eurozone in 2017," said Howard Archer, an economist at IHS Global Insight.
However, there were signs that the rise in optimism might not translate into significantly higher spending by consumers. Figures also released Friday by the EU's statistics agency showed retail sales fell 0.4% in November from the previous month. The decline was a surprise, since economists surveyed last week by The Wall Street Journal estimated sales rose 0.6%.
Sentiment may have been supported by a Dec. 8 decision by the European Central Bank to extend its flagship bond-buying program to the end of 2017 from a tentative termination date in March.
Friday's releases add to other recent indications that eurozone economic growth picked up in the final months of 2016. A December survey of manufacturers and service providers issued Wednesday recorded the fastest growth in activity since May 2011, and economists estimate that gross domestic product increased by either 0.4% or 0.5% in the fourth quarter, having expanded by 0.3% in the previous two periods.
The survey of consumers and businesses was taken before a Dec. 20 terror attack in Berlin, Germany's deadliest in decades. That may affect sentiment in the January survey, but previous experience suggests any blow to morale will prove short-lived. The ESI dipped in August following a July 14 terror attack in France that claimed 86 lives, but rallied in subsequent months.
Outside the eurozone, sentiment also continued to pick up. The U.K.'s national ESI rose to 108.6 from 107.3, its highest level since December 2015 and therefore above the level recorded just before the Brexitvote. Policy makers had feared that the uncertainty created by the decision to leave the EU would weaken confidence and spending.
Write to Paul Hannon at firstname.lastname@example.org
(END) Dow Jones Newswires
January 06, 2017 06:58 ET (11:58 GMT)
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