European consumer, business and investor sentiment surveys all impress

European consumer, business and investor sentiment surveys were all better than expected on Monday, though expectations for inflation and therefore interest rates remain low.

The economic sentiment indicator for the eurozone increased strongly by 1.4 points to 116.0, and by 1.6 points across the wider European Union to 115.9, reaching the highest levels since August 2000.

Based on historical comparisons, this looks consistent with year-on-year GDP growth accelerating to as much as 4% in the fourth quarter from 2.5% in the third, economists said.

Breaking down the ESI into its parts, the industrial index, which is given a weighting of 40%, gained 1.0 point to a record high and points to annual industrial production growth of about 5.5%; while the services indicator, which gets a 30% weighting, increased by a sharp 2.0% to suggest annual growth in the sector will pick up to above 2.5% in the fourth quarter from 2.4% in the third.

Amongst the largest euro-area economies, sentiment rose most strongly in France and Germany and, to a lesser extent, in the Netherlands, while it remained unchanged in Italy and decreased slightly in Spain further into negative territory. Of all EU states, Malta, Hungary and Austria had the strongest ESIs in December, while at the bottom, Greece moved above 100 for the first time since November 2014.

Meanwhile, the Sentix investor sentiment index increased to 32.9 in January from 31.1 in December, above the consensus, 31.3.

The EC's economic confidence indicator also increased, to 116 from 114.6, beating the consensus estimate of 114.8, while the business climate and consumer sentiment indicators also both improved and retail sales also released on Monday were improved too.

The broad-based improvement across the surveys suggests that the euro-zone economy gained yet more momentum at the end of 2017, said economist Stephen Brown at Capital Economics, though noting that inflation expectations remain low.

"This supports the ECB’s gradual approach to normalising monetary policy. We think that it will wait until late 2019 to raise interest rates."

Looking at the Sentix survey, economists at Pantheon Macroeconomics noted that the headline figure was lifted by upturns in both the current situation and expectations indices, signalling that investors sentiment have rebounded at the start of 2018, partially reversing the dip at the end of last year.

"Equities in the Eurozone have been range-bound—and broadly unchanged—since May, but have rallied strongly in the first few sessions of the year. Excess liquidity suggests that the gains will be sustained, but trailing foreign inflows suggest that a lot of the good macro news already have been priced in."

Looking beyond the story in markets, the Sentix has moved sideways in recent months, in contrast to soaring IFO expectations index. "The two don’t always move in sync but the Sentix suggests that economic sentiment could dip further in coming months."