Eurozone Business Confidence Jumps

        Businesses and consumers across the eurozone became more optimistic about their prospects in March, reflecting lower oil prices, a weaker euro, and the hope that the European Central Bank's new program of quantitative easing will prove decisive in shifting the currency area onto a recovery path.
        The pickup in confidence indicates that business investment and household spending may increase in coming months, a development that would aid a recovery that remains very modest, and threatened by a slide into deflation.
        The European Commission on Monday said its Economic Sentiment Indicator--a measure of business and consumer confidence--rose to 103.9 in March from 102.3 in February, moving further above its long-term average of 100.0 and reaching its highest level since June 2011.
        The surge in optimism was spread across most of the eurozone's larger members, but was most strongly felt in Italy, and most weakly felt in France. Confidence weakened significantly in Greece, as the country's government sought a new agreement with the rest of the eurozone on the conditions for its bailout, while the funds available to pay its international debts dwindled.
        Economists often compare falling oil prices with declining income or sales tax rates, since they leave households with more money to spend on other goods and services. The recent, sharp fall in oil prices is likely to have made many eurozone households feel better about their near-term financial positions.
        They have also lowered business costs, while the weaker euro has helped boost the competitiveness of eurozone exporters on world markets.
        Consumers and businesses also appear to have been encouraged by the ECB's launch of a program of QE that will see it buy more than one trillion euros of mostly government bonds by September 2016. The early response of financial markets to the program has been positive, with share prices soaring and bond yields tumbling.
        Consumer spending was one of the drivers of a return to growth in the eurozone last year, although the growth in spending slowed in the final three months of 2014 to 0.4% from 0.5% in the third quarter. But there was a surprise revival in investment spending, which was up 0.4% during the quarter, having been flat in the previous three-month period.
        Rising business and consumer confidence will help ease concerns about a possible slide into deflation.
        Underlining those concerns, the commission's surveys indicated that consumers and manufacturers continue to expect prices to fall over the coming 12 months, although less sharply than they did in January and February.
        Consumer prices were lower than a year earlier for the third straight month in February, and policy makers worry that businesses and households will start to postpone spending decisions in the expectation that goods will be cheaper in the future.
        However, a strengthening of confidence that prompts consumers and businesses to spend more freely makes such a development less likely.
        Write to Paul Hannon at paul.hannon@wsj.com
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        (END) Dow Jones Newswires

        March 30, 2015 05:20 ET (09:20 GMT)

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