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EU Confidence Growing, ECB Cautious    04/27 06:05

   Further evidence emerged Thursday that the economy in the 19-country 
eurozone has moved up a gear or two in the early months of the year.

   FRANKFURT, Germany (AP) -- Further evidence emerged Thursday that the 
economy in the 19-country eurozone has moved up a gear or two in the early 
months of the year.

   However, with uncertainties remaining over the outcome of the French 
presidential election and inflation still low, the European Central Bank is not 
expected to signal an end to its stimulus programs when it wraps up its latest 
policy meeting Thursday.

   ECB President Mario Draghi is still likely to note during his press 
conference the recent array of good news on the eurozone economy, the latest of 
which came from a survey by the the European Union's executive Commission

   According to the Commission, economic sentiment across the eurozone is at 
its highest level for nearly a decade. In its monthly survey of the region, it 
said its economic sentiment indicator rose by 1.6 points in April to 109.6, the 
highest since August 2007, when early signs of the global financial crisis were 
emerging.

   The Commission said the increase was broad-based across sectors, including 
industry and retail, and across countries, most strongly in the big three of 
Germany, France and Italy.

   The findings echo other recent surveys suggesting that the eurozone economy 
has picked up steam this year despite concerns related to a run of elections in 
Europe and Britain's exit from the EU.

   Research firm Capital Economics said the Commission's survey "looks 
consistent with a sharp acceleration" in annual eurozone GDP growth from the 
fourth quarter's 1.7 percent to over 2.5 percent. That rate of growth has been 
common in the United States in recent years but rare in the eurozone, which has 
struggled with a debt crisis that raised questions over the future of the euro 
currency itself. With those financially strained countries --- even Greece --- 
now showing improvements in their budgets, there are hopes that uncertainty 
over the eurozone itself will abate further.

   Analysts also think that Draghi will give no sign that the bank is ready to 
start withdrawing its stimulus in order not to create any uncertainty for 
markets before the second round in the French presidential election between 
centrist Emmanuel Macron and far-right Marine Le Pen.

   The stimulus entails injecting 60 billion euros ($65 billion) a month into 
the financial system by buying bonds. The purchases are set to run at least 
through the end of the year, and in any case until inflation shows a convincing 
turn upward toward the bank's goal of just under 2 percent considered consisted 
with a strong economy. The ECB has also cut its benchmark interest rate to 
zero, and started charging a fee on deposits it takes in from banks, in effect 
pushing them to lend the money to business instead of hoard it.

   Draghi has said the stimulus is a safeguard against the risk of political 
events derailing the recovery. The eurozone economy grew by a relatively robust 
quarterly rate of 0.4 percent in the final three months of last year, but 
unemployment remains elevated at 9.5 percent and annual inflation is still 
subdued at 1.5 percent.

   Ending the bond purchases would have wide-ranging consequences for 
governments, investors and savers. It would likely lead to higher long-term 
interest rates, raising costs for borrowers such as governments and home 
buyers. Higher returns on bank deposits and bonds would mean less incentive to 
put money in riskier assets such as stocks.


(KA)

 
 
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