European Confidence Improves to Highest in 14 Months

Nov. 27 (Bloomberg) -- European confidence in the economic outlook improved in November to the highest since the collapse of Lehman Brothers Holdings Inc., suggesting the recovery in the 16-nation euro region is gathering strength.

An index of executive and consumer sentiment rose for an eighth straight month to 88.8 from 86.1 in October, the European Commission in Brussels said today. That was the highest since September 2008, when Lehman filed the biggest bankruptcy in U.S. history, compounding the financial crisis.

The euro-area economy emerged from its worst recession in more than 60 years in the third quarter after governments spent billions of euros on stimulus programs and the European Central Bank lowered borrowing costs to near zero. HeidelbergCement AG, Germany’s largest cement maker, said this month that it is “very optimistic” about the outlook. Rising unemployment and a stronger euro are threatening to undermine the recovery.

“It’s a good outcome, supporting evidence that the euro- region economy has embarked on a gradual recovery,” said Nick Kounis, chief European economist at Fortis Bank Nederland NV in Amsterdam. “The indicator still has some catching up to do even with the recovery likely to remain moderate.”

The euro was lower against the dollar after the report, trading at $1.4870 at 2:30 p.m. in London, down 1 percent on the day. The yield on the German 10-year benchmark bond was unchanged at 3.16 percent.

Next Year

The global economy may expand 1.9 percent next year and 2.5 percent in 2011, the Organization for Economic Cooperation and Development said on Nov. 19. The Paris-based group previously forecast the economy to grow 0.7 percent in 2010. In the euro region, gross domestic product may rise 0.9 percent next year instead of a previously projected stagnation, the OECD forecast.

Adding to signs of recovery, Europe’s manufacturing and services industries expanded for a fourth month in November and European investors became more optimistic. In Germany, business confidence increased to a 15-month high in November.

Demand is “slowly reviving,” Martin Winterkorn, chief executive officer of Germany’s Porsche SE and Volkswagen AG car manufacturers, said on Nov. 25. “I’m cautiously optimistic on the outlook for 2010.” Rome-based Bulgari SpA, the world’s third-largest jeweler, said on Nov. 12 that it returned to profit in the third quarter on reviving global demand. CEO Francesco Trapani said he expects “a general improvement, especially in the first quarter” of next year.

DAX Index

The Dow Jones Stoxx 50 Index has risen 14 percent this year while Germany’s benchmark DAX Index has increased 2 percent in the past three months, bringing gains to 16 percent in 2009.

ECB President Jean-Claude Trichet said on Nov. 5 that he expects Europe’s economy to gather strength in the second half and recover at a “gradual pace” in 2010. The Frankfurt-based central bank has purchase covered bonds and injected billions of euros into markets to restore lending.

“On the one hand, there are signals that seem to suggest the low point of the crisis is behind us,” ECB council member Nout Wellink said on Nov. 25. “On the other hand, the recovery is fragile and clouded by substantial uncertainties.”

The euro’s 19 percent ascent against the dollar since mid- February is threatening to curb the recovery by making exports less competitive. European officials have urged China to loosen controls on the yuan after the country kept its currency largely unchanged versus the dollar for more than a year, exposing the euro region to the dollar’s slide. Trichet is scheduled to meet Chinese authorities on Nov. 29 in Nanjing to discuss currencies.

Weaker Dollar

“There will be a bit stronger pressure on China even if the point is probably more effectively made behind the scenes,” said Julian Callow, chief European economist at Barclays Capital in London. “I imagine Trichet having gone all this way, that they want to come back with a message that China understands their position and is committed to more flexibility in due course.”

Deutsche Telekom AG Chief Executive Officer Rene Obermann said on Nov. 5 that the company is looking “very carefully” at developments in currency markets. European Aeronautic, Defence & Space & Co., the owner of Airbus SAS, said on Nov. 16 that quarterly profit slumped 77 percent because of a weaker dollar.

With companies cutting costs and eliminating jobs to help shore up earnings, the ECB has signaled it is in no rush to withdraw stimulus measures. The central bank will release its latest forecasts on the economic development and inflation on Dec. 3 when policy makers meet for their monthly rate decision in Frankfurt.