European confidence in the economic outlook improved more than economists forecast in December, led by increasing optimism among German manufacturers. An index of executive and consumer sentiment in the euro region jumped to 106.2 from 105.1 in November, the European Commission in Brussels said in a statement today. That’s the highest since October 2007. Economists forecast a gain to 105.8, the median of 14 estimates in a Bloomberg News survey shows. Euro-area retail sales fell 0.8 percent in November from the previous month, a separate report showed. The German economy, Europe’s largest, has powered the region’s expansion over the past year as companies stepped up output and hiring to meet export demand. While governments from Ireland to Spain are struggling to revive their economies and push down budget deficits, German business confidence surged to a record last month and manufacturing growth accelerated. Germany will remain the growth engine,” said Christoph Weil, a senior economist at Commerzbank AG in Frankfurt. “Over time, it will become more difficult with some countries struggling to push down budget deficits. The debt crisis will keep us busy over the entire year.” The euro pared its decline against the dollar after the data, trading at $1.3122 at 10:02 a.m. in London, down 0.2 percent on the day. Debt Crisis A gauge of sentiment among manufacturers rose to 4 from 0.7 in November, led by a jump to 13.7 from 9.9 in Germany, while euro-area services confidence slipped to 9.8 from 10.3, today’s report showed. The index of consumer confidence dropped to minus 11 from minus 9.4 and sentiment among builders held at minus 26.2. The euro’s 8.8 percent slide against the dollar over the past year has helped fuel European exports by making goods more competitive as the region’s debt crisis worsened. The German economy probably expanded at more than double the euro region’s pace in 2010, the European Commission forecast. The economies of Ireland, Spain and Greece probably contracted, it said. Germany’s benchmark DAX benchmark index has gained 17 percent over the past six months, making it the second best performer after the U.K.’s FTSE 100 Index among major European equity markets. The Euro Stoxx 50 Index has increased 9.9 percent over that period. Faster-Growing Economies Companies have relied on faster-growing economies to boost sales as governments across Europe started to cut spending and raise taxes. Audi AG, the luxury brand of Wolfsburg, Germany- based Volkswagen AG, said on Jan. 4 that December sales jumped about 17 percent in the U.S., making a “nice finish for what has been an outstandingly successful year,” Johan de Nysschen, president of Audi of America Inc. said. U.S. service industries expanded in December at the fastest pace since May 2006, the Institute for Supply Management’s non- factory index, which covers about 90 percent of the world’s largest economy, showed yesterday. Manufacturing last month grew at the fastest pace in seven months. In the euro region, a gauge measuring manufacturers’ production expectations rose to 18.1 from 14.5 in November, today’s report showed. An indicator of export order books rose to minus 7.1 from minus 10.8 and companies also grew more confident about hiring over the coming months. The European Central Bank last month kept its euro-area growth estimate for this year at around 1.4 percent and projected an expansion of about 1.7 percent in 2012. The Frankfurt-based central bank led by Jean-Claude Trichet will hold its next rate meeting on Jan. 13. An indicator of consumers’ price expectations over the next 12 months rose to 15 from 10.7 in November, today’s report showed. Estonia this month became the 17th nation to join the euro region. To contact the reporter on this story: Simone Meier in Zurich at smeier@bloomberg.net To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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