European Commission data issued today indicates optimism among euro zone businesses jumping to a nearly five-year high in March.
The European Commission's economic sentiment indicator rose to 103.5 points from 102.7 in February, beating a forecast of a rise to 102.8. The rise points to an economic recovery and further interest rate rises despite falling inflation and falling consumer confidence.
The indicator measures confidence in industry, services and retail sectors; construction; and among consumers.
The commission's separate business climate indicator for the euro zone was also surprisingly strong at 0.8 points from 0.61 in February, suggesting a pickup in industrial output in the first quarter.
Also today, EU statistics agency Eurostat said inflation fell to an annual rate of 2.2 percent in the euro zone in March from 2.3 per cent in February, in line with expectations. Economists said the fall was due to base effects as the impact of high oil prices wore off.
But consumer confidence, long the weakest link in the euro area's nascent economic recovery, fell by one point to -11, showing households did not share the optimism among businesses, mainly because of concerns about a rise in unemployment.
The commission survey also showed inflation expectations among consumers improved in March to 16 points from 17 in February, well below the long-term average of 23 points.
The European Central Bank has signalled it is ready to raise interest rates further this year to curb inflationary pressures from high and volatile oil prices as well as from fast credit growth as an economic recovery gathers steam.