FRANKFURT (Reuters) - The euro zone economy is on course for a timid and patchy recovery, driven by increased spending but weighed down by lacklustre investment and labour demand, the bloc's biggest firms told the European Central Bank in a regular survey.
The euro zone economy stagnated for the past six quarters and a separate survey on Friday predicted annual growth of just 0.5% this year, suggesting that it could take well into next year before growth returns to trend.
"Contacts generally concurred with a baseline narrative of a gradual but modest recovery in activity over the course of the year," the ECB said after surveying 57 leading companies. "The recent destocking cycle came to an end, along with tentative signs of improving consumer confidence."
As for inflation, companies reported a slight uptick, mainly due to a rebound in the prices of some intermediate goods and services, the ECB said.
But growth in prices closer to the final consumer continued to ease gradually, it added.
On the plus side, firms in the consumer goods sector reported "reasonable" growth and firms in intermediate goods reported that demand was stabilising or even growing.
They also said that demand for consumer electronics was starting to recover, the ECB said.
However, retailers remained quite downbeat about the overall outlook for the retail sector and the food industry is also not experiencing any sort of turnaround.
Investments also remained weak with firms in the capital goods industry pointing mostly to still declining demand and falling production.
"Contacts described a weak employment outlook amid limited recruitment needs and a continued focus on cost containment," the ECB added.