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Eurozone Economic Sentiment Improves, Inflation Remains Negative

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Eurozone economic sentiment improved at the end of the year, the large part of which was ravaged by the coronavirus pandemic, and separate data showed that euro area inflation remained in the negative territory and retail sales fell unexpectedly.

Eurozone economic sentiment rose slightly more than expected at the end of the year 2020, preliminary data from the European Commission showed on Thursday.

The economic sentiment index rose to 90.4 from 87.7 in November. Economists had forecast a score of 90.

The ESI's recovery was driven by markedly higher confidence in industry and among consumers and, to a lesser degree, in construction, the commission said. Confidence weakened in services and retail trade.

The industrial confidence index improved to -7.2 from -10.1 in the previous month. Economists had expected a reading of -8.1.

The consumer confidence index climbed to -13.9 from -17.6 in November, matching its flash estimate.

The index for services confidence weakened to -17.4 from -17.1 in the previous month. Economists had forecast a score of -15.0.

The retail trade sentiment index fell to -13.1 from -12.7, while the construction confidence index rose to -7.9 from -9.3.

The survey also showed that the Employment Expectations Indicator partially recovered in December and added 1.4 points to 88.3. Consumer price expectations decreased in December.

"Activity data published this morning suggest that the euro-zone economy performed better in Q4 than we had anticipated," Capital Economics economist Jack Allen-Reynolds said.

"But the recent extensions of lockdowns make it more likely that the economy shrinks in Q1."

Among the big euro area economies, the economic sentiment improved strongly in Italy, Spain and, to a lesser extent, in the Netherlands and France. Morale was broadly unchanged in Germany.

Separate data from Eurostat showed that Eurozone's headline inflation and core price growth was unchanged in December.

The harmonized consumer price index, or HICP, dropped 0.3 percent year-on-year, same as in November. Economists had forecast a 0.2 percent fall.

The core CPI, which excludes prices of food, energy and alcohol & tobacco, rose 0.2 percent year-on-year, same as in November. That was in line with economists' expectations.

Compared to the previous month, the headline HICP climbed 0.3 percent and the core index rose 0.4 percent in December.

Among the main components, the highest annual inflation rate was for the food, alcohol & tobacco group. The rate of inflation eased to 1.4 percent from 1.9 percent in the previous month.

Services cost inflation rose to 0.7 percent from 0.6 percent in November. Prices of non-energy industrial goods decreased 0.5 percent after a 0.3 percent fall in November.

Energy prices dropped 6.9 percent, which was slower than the 8.3 percent decline in the previous month.

The full HICP data for December is set to be released on January 20.

Eurostat also reported that the euro area retail sales fell in November, defying expectations for further increase.

Retail sales decreased 2.9 percent year-on-year, while economists had forecast 0.8 percent growth.

October's growth was revised to 4.2 percent from 4.3 percent.

Compared to the previous month, sales fell 6.1 percent in November, which was nearly double of the 3.4 percent fall economists had expected.

The monthly growth for October was revised to 1.4 percent from 1.5 percent.

The COVID-19 containment measures introduced again by several Member States had a significant impact on retail trade, Eurostat said.

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