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Bloc's retail sales rebounded only feebly in January
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Construction still contracted, sector's PMI showed
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Surprise fall in morale in March's Sentix index
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Expect more ECB rate hikes after March, says Lane
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Big nations' inflation rose in Feb, data showed last week
By Balazs Koranyi
FRANKFURT, March 6 (Reuters) - The euro zone's economic
recovery is tentative and fragile, several indicators suggested
on Monday, adding to signs that even if a recession may have
been avoided, no upturn is in sight.
Surging energy prices and borrowing costs have weighed on
business morale, investment spending and consumer confidence in
the bloc for months - and, notwithstanding a dip in January,
inflation remains stubbornly high while more interest rate hikes
are on the horizon.
Some economic readings have been better than feared,
particularly through the winter, but Monday's retail trade data,
a key sentiment indicator, and construction figures tempered any
nascent optimism.
Euro zone retail sales, a good proxy for consumer demand, rebounded much less than expected in January, challenging other data, including PMI surveys, which pointed to a steady recovery. Retail sales rose 0.3% on the month, below the 1% rise forecast by economists, and were down 2.3% year on year.
That suggests "a weak start to the year for the consumer amid stubbornly high prices," ING economist Bert Colijn said. "While surveys about the first quarter have been relatively upbeat so far, these sales data don't give much evidence that a rebound has started." Data last week showed that inflation in Germany, France and Spain - three of the bloc's top four economies - unexpectedly rose in February.
STAGNATION PHASE AT BEST? Adding to the downbeat news, Sentix's index, a key indicator of investor morale, fell unexpectedly in March for the first time since October, dragged down by a decline in expectations. The index fell to -11.1 points from -8.0 in February, well under economists' expectation for a rise to -6.3.
An index on the current situation rose for the fifth month running, but it stayed below zero, indicating the economy is at best in a stagnation phase, the survey showed.
That "could soon turn into renewed recession worries if the negative economic expectations materialize," said Sentix Managing Director Manfred Huebner in a statement.
Monday's S&P Global euro zone Construction PMI offered mildly positive news from that sector. However, while the reading rose to a nine-month high of 47.6 in February from 46.1 in January, it stayed below the 50 mark that separates expansion from contraction.
Economic growth and business confidence is also being held back by rising borrowing costs and increasing caution from commercial banks, who are lending more selectively.
That is not about to change.
The European Central Bank is hiking rates at the fastest
pace on record, and its chief economist Philip Lane said on
Monday that the bank is still likely to keep raising them after
a 50 basis point increase this month.
"The current information on underlying inflation pressures
suggests that it will be appropriate to raise rates further
beyond our March meeting," Lane said in a speech in Dublin,
confirming market expectations for more moves through the spring
and possibly the summer.
(Additional reporting by Rachel Moore, Jan Strupczewski and
Francesco Canepa; editing by John Stonestreet)
