Euro-area confidence inches up from record low as lockdown eased

By: Bloomberg |

Published: May 28, 2020 10:26:25 pm

A winch carries a sealed steel coil over a storage area ahead of shipping at the Salzgitter AG steel plant in Salzgitter, Germany, on Monday, March 2, 2020. The steelmaker reports earnings on March 16. Photographer: Krisztian Bocsi/Bloomberg

Economic sentiment in the euro area rose from a record low after companies started to reopen across the continent following the easing of pandemic restrictions.

A small pickup in the European Commission gauge is consistent with similar reports in recent weeks that suggest the 19-nation region is slowly working its way out of the worst crisis in living memory. At the same time, the loss of jobs and business to weeks of lockdowns is likely to leave lasting damage on the fabric of the economy.

The recovery in industry confidence in May was driven entirely by higher production expectations, which reversed roughly half their slide of the previous two months. At the same time, manufacturers became more pessimistic about demand, and sentiment in services also worsened, reflecting the particular pressure on hotels, restaurants and tourism.

The European Union’s executive arm unveiled an unprecedented stimulus package Wednesday that’s anchored by 750 billion euros ($825 billion) of joint debt issuance and skewed toward euro members most affected by the pandemic including Italy and Spain.

Governments have also announced generous individual initiatives to help their economies regain ground. Earlier this week, President Emmanuel Macron unveiled a raft of measures aimed at reviving France’s struggling car industry. Germany is set to present a comprehensive plan in early June.

European Central Bank President Christine Lagarde has praised member states for their quick response and tried to alleviate concern on Wednesday that higher public spending will result in a new debt crisis. Policy makers have kept borrowing costs low with a new 750 billion-euro bond-purchase plan, which is likely to be increased at next week’s Governing Council meeting.

At that time, new economic projections will be available. The commission has predicted a 7.7% decline in euro-area output for the year, and the ECB is bracing for a slump between 8% and 12%.

With efforts to revive the economy growing in size, sentiment rose to 67.5 from a downwardly revised 64.9 in April. That number was updated to account for changes in French data.

Sentiment edged up in the Netherlands, Germany, and Spain and was broadly unchanged in France. With April data for Italy unavailable, it’s not possible to judge the latest twists in the trend in the euro area’s third-largest economy.

The region’s employment expectations gauge bounced back in May but remained at historically low levels. Job losses are only starting to mount, especially in industries hardest-hit by the pandemic. Unemployment is rising even in Germany despite a generous support program offered by the state.

TUI AG, the world’s biggest package-holiday company, will eliminate as many as 8,000 jobs, about 15% of its workforce. Air France-KLM has started talks with unions to reduce staff as part of a restructuring to be unveiled in the coming months.

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