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Euro zone sentiment jumps despite Greece Add to ...

Euro zone economic sentiment jumped much more than expected in April despite the raging Greek fiscal crisis, data showed on Thursday, pointing to strengthening economic activity in the second quarter.

The European Commission's economic sentiment indicator for the 16-country area rose to 100.6 points from March's upwardly revised 97.9. Sentiment in industry improved to -7 from -10, in services to 5 from 1, among consumers to -15 from -17 and in the retail sector to -1 from -6 points.

Economists polled by Reuters had on average expected a rise in economic sentiment to 99.4 points, having forecast a smaller improvement in industry and services.

"The further sharp increase in overall economic confidence in April raises hopes that euro zone second-quarter GDP growth may turn out to be quite flattering," said Martin van Vliet, economist at ING.

"But with the Greek debt crisis showing signs of spreading, recovery prospects thereafter look increasingly uncertain."

Some economists said the sentiment indicator pointed to annual gross domestic product growth of just over 1 per cent, or quarterly increases of around 0.4 per cent in the first and second quarters.

"Indeed, there are even signs of a silver lining from the fiscal crisis -- exports orders rose further, presumably partly related to the euro's descent," said Jennifer McKeown, economist at Capital Economics.

"This is all pretty encouraging, then, but we fear that the improvement in sentiment will not be sustained once the fiscal squeeze tightens and widens," she said.

In the euro zone, economic sentiment eased in Greece, Portugal and Slovakia, while it surged in Germany, France, Italy and Spain.

"The national sentiment indicators show that the gap in growth within the euro zone is increasing," said Christoph Weil, economist at Commerzbank.

"The debt crisis of periphery countries will strengthen this trend. The consolidation of public finances will dampen growth significantly in the periphery states this year and beyond," he said.

"This will increase the economic tensions within the euro area and put greater pressure on the ECB to take more account of the crisis countries in its monetary policy decisions," Weil said, adding he did not expect a rate rise before spring 2011.

The European Central Bank keenly watches inflation expectations because it wants consumer price growth of just below 2 per cent.

The monthly Commission survey showed that selling-price expectations among manufacturers in the euro zone jumped to 5 points, a long-term average, from -2 in March.

Among consumers, expectations on prices over the next 12 months rose to 8 points from 4 points.

The Commission survey said capacity utilization in the euro zone manufacturing industry increased to 75.5 per cent in the second quarter from 72.3 per cent in the first, but it remained well below the long-term average of 81.2 per cent.

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