Economic Data Show Eurozone Steadier, Still Weak

FRANKFURT, Germany (AP) -- The euro area's economy is showing modest signs of improvement, as new figures Wednesday indicated more consumer optimism and steadier bank finances. Weak demand for bank loans, however, made it clear the recovery was still some way off.

The European Union's economic sentiment indicator, which mixes business and consumer outlooks, rose by 1.4 points in January to 89.2 for the 17 EU countries that use the euro. It was the third straight monthly increase. The jump was fed by increased confidence among consumers and from businesses in the construction and service sectors of the economy.

Meanwhile, sentiment in industry and the retail trade remained broadly flat.

The survey is one hopeful sign as the eurozone struggles to get out of a recession that saw its economy shrink in the second and third quarters of 2012. A drawn-out crisis over too much government debt is weighing on growth as countries cut back on spending to reduce their deficits.

Nonetheless, the sentiment indicator remains well below its long-term average of 100 for 1999-2012. And much of the improvement in consumer sentiment came from just one country, Germany.

The data mean that the eurozone probably bottomed out in October and that "growth prospects are brightening, " IHS Global Insight analyst Howard Archer said. Still, he said it "remains to be seen to what extent and how quickly this will feed through to boost eurozone economic activity.

The European Central Bank expects the economy to shrink 0.3 percent throughout the course of 2013, but to make a modest recovery later on in the year.

Bank lending data from the ECB confirmed Wednesday that the recovery remains a ways off. Its quarterly lending survey, released Wednesday showed a "pronounced net decline" in business loan demand in the last three months of last year. The main reason: Companies are not seeing a need to finance new fixed investment such as buildings and machinery, a key component of any economic recovery.

The survey also shows banks continue to tighten credit standards.

The ECB survey of senior loan officers at 131 banks indicated that the banking system is on a steadier footing. Banks are now reporting better access to funds from deposits and borrowing.

Banks, key to growth as suppliers of credit, were hit hard during the eurozone debt crisis by losses on government bonds. This made it harder for them to borrow from other banks and bond investors due to fears they might not pay the money back.

Banks are also facing regulators' demands to hold back more money as a financial buffer against losses. These requirements can also mean less money available to lend out.

Eurozone financial markets have been more stable since the ECB offered to buy bonds issued by indebted countries in the secondary market if those countries promise to reduce their deficits. That offer has lowered government borrowing costs although no bonds have actually been bought.

The improvement on stock and bond markets, however, has yet to be seen in the wider economy.

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