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Euro zone sentiment recovers in January despite Greek risks

BERLIN (Reuters) – Sentiment in the euro zone improved in January for a third month running as investors and analysts shrugged off uncertainty over new Greek elections and their view of longer-term economic developments reached its most optimistic level in six months.

The Sentix research group’s index tracking morale among investors and analysts in the euro zone rose to +0.9 in January from -2.5 the previous month, above a consensus forecast in a Reuters poll for a reading of -1.0. The indes returned to positive territory for the first time since August 2014.

“This development is striking because since last month we have faced new elections in Greece as another stress factor in the euro zone. However, investors clearly increasingly regard Greece as an isolated problem, which will barely affect the rest of the euro zone,” Sentix said in a statement.

Three months of improvement in the headline index signalled a positive trend change for the euro zone, Sentix added.

“This recovery signal is interesting, as the European Central Bank is on the verge of starting its broad-based bond buying programme to fight deflation. In a recovery period however, such a measure is barely necessary.”

Greece holds parliamentary elections on January 25 and opinion polls suggest that the left party Syriza will emerge the strongest. The party wants to cancel austerity measures and a big chunk of national debt, but has been warned by partners like Germany that Athens may lose euro zone support if it flouts the terms of its bail out.

With the euro zone flirting with deflation, many expect the European Central Bank will soon launch quantitative easing – printing money to buy government bonds. The bank has already pushed its key interest rate down to a record low of 0.05 percent and doubts are growing about the impact of earlier measures.

A Sentix sub-index of expectations for the euro zone’s economy recovered to 13.5 in January from 12.0 the previous month, while investors’ perception of the current economic situation improved to -11.0 from a previous -16.0.

An index tracking Germany rose to 26.6 in January, as investors expected a weaker euro and lower oil prices to support German exports.

(Reporting by Alexandra Hudson; Editing by Noah Barkin)

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