Eurozone economic sentiment jumped in February to its highest level since the economic crisis, but a surge in inflation expectations accompanied prospects of a rebound of growth in the first quarter. The European Commission's monthly survey showed on Thursday that economic sentiment in the 17 countries using the euro rose to 107.8 this month, a 41-month high, from a revised 106.8 in January. Economists polled by Reuters expected a 106.8 February reading.
Sentiment gained in all sectors of the economy, most markedly among builders, consumers and in the services sector. "Today's data confirm that an acceleration of GDP growth in the first quarter of the year is likely after the relatively poor performance recorded in Q4 2010," said Clemente de Lucia, economist at BNP Paribas.
"The index was consistent with GDP growth around 0.7 percent quarter-on-quarter after 0.3 percent quarter-on-quarter in the previous quarter," de Lucia said. Sentiment improved sharply in Poland and Britain, followed by Spain, Germany and the Netherlands. The Commission survey also showed a sharp increase in consumer price inflation expectations for the next 12 months, with the index hitting 25.7 points from 20.9 in January, significantly above the long-term average since 1990 of 20.6 points.
Inflation expectations among manufacturers rose to 22.7 points from an upward-revised 17.3 in January, well above the long-term average of 5.6 points. Consumer price inflation in January was 2.4 percent year-on-year, above the ECB's target of below but close to 2 percent.
Economists expect the European Central Bank to hold interest rates at the record low level of 1 percent until at least October, according to a Reuters poll. But the ECB's rhetoric about the risks of rising prices has intensified since the start of the year.