Nudging Against the Roof in the Eurozone?

I wouldn't dare to spin the recent news on business confidence in the Eurozone as decidedly bearish. After all the aggregate Eurozone economy seems very healthy on a relative basis here in the beginning in 2007, and by relative I mean something like compared to the growth rates in a post 2000 period. Yet, there are however signs that we might just be hitting the ceiling for optimism gauges with the recent business confidence survey in the three biggest economies, Italy, France and Germany. The FT has a well informed article on the aggregate data ...

(from the FT)

Business confidence in the 13-country eurozone, which has soared over the past year, shows signs of peaking, with Germany reporting unchanged levels of optimism while France and Italy saw declines.

Germany’s closely-watched Ifo business climate index remained unchanged at 108.6 in May – only a whisker lower than the 108.7 record set in December last year, the Munich-based Ifo institute reported. Italian business confidence fell from April’s six-year high, while France also saw a correction after three consecutive monthly gains.

The usual suspects are invoked as culprits, an appreciating Euro and a slowdown in the US where the former of course also ties to a tightening ECB. Meanwhile, the Eur/Usd remains volatile around the 1.35ish band dropping today on updeat data from the US on home sales and durable goods orders. So, don't expect this to deter the ECB  where I am confident that it will take a more pronounced effect from the real side of the economy to make the central bank stray off its tightening course. As such,  the ECB still retains it much cherished vigilance against inflation. It does however suggest perhaps (just perhaps) that the ECB will be going to think twice about moving beyond 4% in 2007. On the other hand there seems to be a general consensus amongst the high lords that inflation should be something to worry about. Recently, the OECD for example noted that central banks, with the notable exception of Japan, should raise rates in 2007 to curb inflation.