What's going on here?
Europeans are feeling good! A measure of businesses’ and consumers’ confidence in the economy hit its highest level since 2011.
What does this mean?
The eurozone ended 2016 with a swathe of data indicating that its economy is steadily, albeit un-spectacularly, improving. Unemployment is falling and more jobs lead to people spending more money (and feeling better about their economic prospects). Just like in the US, consumer spending is a big part of the eurozone’s economy – so a happy consumer is typically a big part of any economic recovery.
Interestingly, people and businesses appear to be focusing on their improving economic prospects rather than on any of the risks associated with Italian banks or upcoming elections in major eurozone economies.
Why should I care?
The bigger picture: “Animal spirits” are important.
Economists can parse hard data until they are blue in the face, but one of the most important factors in any economy is the intangible “feeling” that helps businesses and people determine whether they should spend their money. If you feel like things are going well at work, you’re more likely to eat out at a restaurant. Companies that have a rosy view of their business prospects are more likely to hire new workers. Confidence surveys try to measure this important, intangible factor – and it appears to be very positive in the eurozone.
For the markets: The stock market is reflecting a better view of the eurozone’s economy than it was a few months ago.
European stocks are up 6% over the past month, partly because of the improved economic data that’s come out recently. Investors are certainly aware that political risks will likely be a factor in 2017 (as the Netherlands, France and Germany hold elections), but lately the market sentiment appears to have changed and investors are focusing on the positives.