Analysts say eurozone stuck in "two-speed" recovery

Economic sentiment in the eurozone remained broadly stable in November, but analysts warned on Thursday that a meaningful acceleration in growth is unlikely in the near term, with survey data continuing to paint a picture of a "two-speed" economy.

The European Commission's economic sentiment indicator edged up 0.2 points to 97.0 points, in line with expectations and still below its long-term average of 100 for the period 2000 to 2024.

Employment expectations also improved slightly, rising 0.8 points to 97.8, though they too remain below average.

The Commission said the "nearly unchanged" November reading reflected "higher confidence in services, retail trade and construction, which was almost entirely offset by lower confidence in industry. Confidence among consumers remained broadly stable." Spain, Italy and France saw improvement, while Germany and the Netherlands were broadly flat.

Analysts at ING said the latest data show sentiment "gradually improving", but with persistent divergence between sectors and countries.

"In November, the economic sentiment indicator climbed to 97 from 96.8 in October. However, industrial confidence dipped, mainly due to dwindling orders - especially from exports," ING's Peter Vanden Houte said. He warned that "higher US tariffs and a strong euro are making export growth less predictable."

Inventory assessments, he noted, "dropped to their lowest point since May, which could pave the way for increased production early next year."

At the same time, ING said the services sector recorded "its highest confidence in over a year", while retail and construction confidence also increased. "Construction sentiment is now at its strongest since June 2023."

Consumer confidence, however, remained steady. "Unsurprisingly, consumer confidence remained stable in November," ING said.

On prices, ING said the latest survey points to sticky underlying inflation. "Selling price expectations climbed above the long-term average in every sector," it said, while consumers "anticipate faster price increases ahead." ING said that although falling energy prices could push headline inflation below 2% "soon", the survey "indicate[s] that underlying inflation will likely ease only slowly."

Overall, ING said the data confirm that the eurozone remains on a modest growth path.

"What looks certain is that the eurozone's economy remains on a growth track, albeit a subdued one," Vanden Houte said, adding that "a meaningful uptick may not occur until Germany's budgetary stimulus kicks in, expected no sooner than the second half of 2026."

He said the European Central Bank is likely to keep rates on hold. "There's no need for more stimulus, and inflation does not warrant any drastic new monetary policies."

Oxford Economics also highlighted the mixed signals in Thursday's data. Senior economist Riccardo Marcelli Fabiani said the sentiment indicator "stayed soft" in November and continues to underscore uneven momentum across the bloc.

He noted that "the country detail showed a persistent divergence within the bloc, with Spain's number jumping from an already robust level and Italy seeing a healthy increase, whereas Germany's index fell further." France also improved, but the indicator "remains subdued."

Oxford Economics said the "persistent German weakness seems exacerbated by its economy being relatively manufacturing-focused, as industry was the only sector seeing a deterioration in confidence."

Like ING, it highlighted rising price pressures. "Price expectations rose across all sectors," it said. That does not imply an end to disinflation, but may signal "that the last mile of core inflation converging to 2% year-on-year may be bumpy."

Marcelli Fabiani said broader survey evidence for November "has been mixed", noting: "The PMI posted a positive print and the Sentix worsened." But he added: "What is much clearer from the country detail and the Ifo is that there are no indications of an imminent pick-up in activity in Germany."

The overall results, he said, "are consistent with our view of subdued but positive growth in the short term, and a two-speed eurozone economy where growth is propped up by a handful of countries."

On employment, Oxford Economics said the uptick in expectations does not fundamentally change the outlook. "Despite the increase, it remains below its long-term average. This suggests that the labour market remains resilient but does not contradict our view that employment growth will diminish as the labour market hits supply-side constraints."

Oxford Economics also pointed to emerging signs of softer business investment. "Some cracks may be forming in business investment," it said, after lending to non-financial companies fell sharply to EUR5 billion in October from EUR13 billion in September.

Even so, "longer-maturity loans - the ones most linked to capex - remained solid", offering reassurance that investment "is plodding along and is likely to continue doing so."

Oxford Economics added that household credit growth continues to be supported by mortgages, as lower rates feed through.

Despite small improvements in sentiment and employment indicators, Oxford Economics said the bloc's outlook remains constrained. "We are far from a sudden halt," it said of credit trends, but warned that "this fourth-quarter will not see fireworks."