BRUSSELS Economic morale in the euro zone reached a 15-month high in July as sentiment improved in the currency bloc's four largest economies, underpinning Europe's chances of a gradual exit from nearly three years of economic downturn.
The single currency bloc of 17 countries is stuck in the longest recession in its history and the chance of a swift recovery are limited by record high joblessness and stringent austerity measures.
But in a positive sign, the European Commission said on Tuesday its economic sentiment index rose to 92.5 points in July - its highest since April 2012 - from 91.3 points in June, though slightly lagging market expectations of an improvement to 92.6.
Separately, the euro zone's business climate index - which measures the phase of the business cycle - improved to -0.53 points in July from -0.67 in June, also the best reading in 15 months.
"Further clear pick-up in economic sentiment to a 15-month high supports hopes that euro zone economic activity has stabilised and could very well eke out marginal growth over the second half of the year," said Howard Archer, European economist at IHS Global Insight.
Confidence improved across all areas except construction, with only one of the euro zone's five largest economies - the Netherlands - deteriorating, by 2.0 points in July, while Germany's reading rose by 0.7 points and France was up by 1.2 points.
The Spanish economy saw sentiment improving in June by 1.2 points to 93.5 points.
A rebound in consumer spending could would support growth although the European Central Bank expects exports to be the main driver of economic recovery.
Economists say July's upbeat data make the ECB unlikely to cut interest rates at a policy meeting on Thursday, leaving its benchmark interest rate at a record low of 0.5 percent.
The rise in confidence in the industry sector stemmed from a sharp improvement in production, with output expectations and overall order books also improving.
Economists, however, say fiscal tightening in Europe, high unemployment and tight credit conditions still give plenty of reasons to remain vigilant.
"While it is encouraging to see that confidence is moving in the right direction, there is still a long way to go before we can realistically suggest that animal spirits have returned," said ING senior economist Martin van Vliet.
(Editing by Susan Fenton)