Germany's economy continues to set the pace in the euro zone and bank lending in the bloc shows signs of reviving too, data showed on Thursday, but Spain and Italy face a harder road to recovery. German consumer morale increased for the third month running, hitting its highest level since last October as shoppers responded to an improving labor market, following an unexpected rise in business sentiment reported on Wednesday. That healthy picture contrasted with a sharp drop in morale in Italy, the euro zone's third-largest economy, where consumers turned much more downbeat over their personal finances and the overall confidence index hit a 17-month low. Spain, among the region's most troubled economies, confirmed a preliminary estimate that its gross domestic product edged up 0.2 percent in the second quarter, with details showing the rise was driven by exports while domestic demand continued to languish. That looked all the more paltry when compared with the 2.2 percent GDP surge reported by Germany on Tuesday, pointing clearly to a two-speed recovery from last year's steep recession. Some analysts fear that Spain, the region's fourth-largest economy, could fall back into contraction in the second half of the year as a rise in value-added tax weighs on consumer spending and government stimulus measures expire. “I don't see any significant driver for growth in Spain,” said RBS analyst Silvio Peruzzo. “The risks of a further deterioration cannot be ruled out.” The European Central Bank reported that loans to the private sector in the euro zone rose an annual 0.9 percent in July, accelerating from a 0.5 percent gain the month before. The pace of rise was almost double the market forecast. Loans to households rose 2.8 percent, unchanged from the previous month, but corporate loans fell 1.3 percent. Annual M3 money supply growth was stable at 0.2 percent. Analysts welcomed the signs of increased appetite for borrowing among households but saw nothing in the data to suggest the ECB will tighten monetary policy in the near future. “It's a bit of a mixed picture,” said Dirk Schumacher of Goldman Sachs. “Lending to non-financial institutions is still missing.” The bank's key refinancing rate has been steady at 1 percent since May 2009. Ireland, which like Spain has seen its government bonds hit by investor doubts in recent months and had its debt downgraded by Standard & Poor's on Wednesday, got some comfort on Thursday from the market response to a Treasury bill auction. The 600 million euros it sold was at the top of its target range, while yields fell compared with the previous sale two weeks ago. S&P cut Ireland's long-term rating by one notch to AA- on fears of a higher bill for supporting the banking sector, and also assigned a negative outlook, drawing an angry reaction from the Dublin government.
