By JACK EWING
Published: October 28, 2010
A main indicator of consumer and business sentiment in Europe rose more than expected on Thursday, while a public bank that finances private enterprise in ex-Communist countries raised its growth forecasts.
The two reports, along with a drop in German unemployment, reinforced expectations that Europe and the former Soviet Union were recovering from last year’s sharp downturn, though growth was still wobbly in places.
The European Commission’s economic sentiment indicator, which measures confidence among consumers and a broad range of industries, rose 0.5 points in October after rising 0.3 points in September. In the euro area, the index rose 0.9 points for the second month in a row. The index is 104.1 for both regions, above the long-term average.
But strong gains in Northern Europe were partly offset by continued pessimism in Spain and other countries in the south that have been the focus of Europe’s sovereign debt crisis.
“So far, the expected growth dip in the euro area has not really materialized,” Christoph Weil, an economist at Commerzbank in Frankfurt said in a note. But he added, “tensions are increasing below the surface.”
In addition, the public European Bank for Reconstruction and Development, whose largest shareholder is the United States, raised its forecast for economic growth in the 29 so-called transition countries it covers, which extend from Hungary to Mongolia.
“The recovery from the crisis is gradually becoming more broad-based across the region, although it is still fragile in some subregions,” the bank said in a report. “Even the recessions in the Baltic states and southeastern Europe appear to be finally bottoming out.”
Growth in the region will reach 4.2 percent this year and 4.1 percent next year, the European Bank for Reconstruction and Development said. In July, the bank, which also receives financing from Europe and countries including Japan and Australia, predicted growth of 3.5 percent this year and 3.9 percent next. Last year, output in the region shrank by 5.5 percent.
Countries that suffered double-digit plunges in economic output last year, including Latvia, Lithuania, Armenia and Ukraine, will grow again next year as bank lending resumes and unemployment falls, the bank said. It also raised its growth forecasts for countries like Poland, Romania and Turkey.
The bank left its forecast for Russia next year unchanged at 4.6 percent. It also said there remained big disparities among regions. In Southeastern Europe, which includes the former Yugoslavia as well as Albania, growth will reach only 1.6 percent next year. That is a more optimistic forecast than the bank made in July, but shows that the region is still struggling after output fell 0.6 percent this year and 5.4 percent in 2009.
Central Asia, including countries like Kazakhstan, will grow the fastest because of higher prices for oil and other commodities, the bank said.
The rise in the European Commission sentiment indicator was led by France and the Netherlands, with Germany recording only a modest increase — another sign that the record growth there this year may be cooling. However, there was other good economic news from Germany on Thursday, as unemployment fell below the three million mark to 7 percent, an 18-year low.
Germany is cashing in the dividend from changes to labor laws made several years ago, Axel A. Weber, president of the German Bundesbank, said. “Comprehensive and sometimes painful labor market reforms have helped to make the labor market significantly more flexible,” Mr. Weber told an audience in Eltville, Germany, according to a release.
Among business, the biggest improvement in the sentiment indicator was among manufacturers, because of booming exports. Financial services recorded a decline for the second month in a row.
But Mr. Weber and others cautioned that there were still many dangers, like excessive trade deficits or surpluses, that could derail growth. “While the financial crisis has been associated with a narrowing of imbalances, recent data suggest that this development has started to go into reverse,” Mr. Weber said. He called on China to allow its currency to fluctuate more to increase domestic demand and compensate for a soaring trade surplus.
Erik Berglof, chief economist of the bank, said that some of the problems that had caused a severe economic crisis in Eastern Europe last year, like a dependency on loans denominated in dollars, have eased. But much more work needs to be done, he said. “There is no room for policy complacency,” Mr. Berglof said.
A version of this article appeared in print on October 29, 2010, on page B9 of the New York edition.
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