European business sentiment picks up,  inflation worries grow, survey finds

Survey Finds European Business Sentiment Improves as Inflation Worries Rise

By Philip Blenkinsop

European Business Sentiment and Inflation Concerns

Survey Results: Improved Sentiment Across Sectors

BRUSSELS, Nov 12 (Reuters) - Sentiment among European companies has picked up across industry and services since June, but there are growing concerns about rising inflation and sovereign debt, according to a survey published by BusinessEurope on Thursday.

Europe's largest business association, which represents 42 federations with a combined 25 million businesses, said a survey of members showed those in industry with negative sentiment had nearly halved to 33% in its latest survey from 62% in June. In service sectors the drop was to 30% from 50%.

Investment Expectations and Growth Forecasts

Investment expectations have risen, noticeably for industry, the twice-yearly survey found, although forecasts for investment growth for this year have been revised down.

Rising Inflation: A Growing Concern

BusinessEurope Members’ Views on Inflation

Almost half of BusinessEurope's members said they were "very concerned" by inflation, up from 40% in June, while another group of just under half of the members said they were "slightly concerned".

Euro Zone Inflation Trends

Euro zone inflation rose to a three-year high of 4.0% in October on surging food and energy costs. Energy inflation hit 20%. Inflation has been climbing quickly above the European Central Bank's 2% target this year as the US war with Iran pushed energy costs higher, feeding through to retail prices for a bloc that imports the vast majority of its energy.

Fiscal Policy and Market Reactions

Criticism of National Fiscal Policies

BusinessEurope members have also become increasingly critical of national fiscal policies, the survey found. Over half now consider the fiscal stance of their own country as too expansionary, while a wide majority believe the ECB's stance is appropriate.

Debt, Interest Costs, and Market Sensitivity

"In several (EU) member states, the combination of rising debt, higher interest costs and delayed consolidation is becoming a growing source of vulnerability, as markets are increasingly sensitive to fiscal risks," BusinessEurope said in a report.

Financial markets have driven up borrowing costs for France and other European countries viewed as having weak government finances.

(Reporting by Philip Blenkinsop; Editing by Kirsten Donovan)