The EU Commission's measure of Eurozone economic sentiment (ESI) proved slightly less optimistic than expected this month. At 101.2, the headline index was up just 0.6 points versus a marginally weaker revised December print and still nearly a point short of its level in mid-year.
January's modest rise was largely attributable to improved confidence in the consumer sector where the final outturn (minus 8.5) was in line with its flash estimate and 2.4 points above its year-end reading. Retail (minus 3.6 after minus 5.2) also made good progress and industry (minus 5.0 after minus 5.2) similarly edged firmer. However, construction (minus 26.5 after minus 25.2) and services (4.8 after 5.6) both lost ground.
Regionally there were small gains in morale in Germany (0.4 points to 103.8) and Spain (1.0 points to 106.6) and a more marked increase in Italy (2.6 points to 101.1). However, France (down 0.4 points to 95.5) weakened further. The jump in the Italian index leaves France as the only member of the larger group of countries below the common 100 long-run average.
That said, following the ECB's belated decision to bite the QE bullet last week, most interest is likely to be in the survey's inflation components. To this end, the central bank will find nothing to cheer about as expected output prices in both manufacturing and services fell and, more worryingly, household inflation expectations were downgraded especially sharply. The slide in the survey's anticipated inflation measures is consistent with the downgrading in inflation expectations seen in Eurozone financial markets since the ECB's QE announcement.
As a result, what might otherwise be regarded as a moderately positive survey is tarnished by the steadily rising threat of deflation. The ECB's bond buying programme cannot start soon enough.
Conducted by the European Commission, the index is a broad measure of both business and consumer sentiment.
The survey offers key sentiment data across the European Union and the European Monetary Union. Data are available for each country and are aggregated for both the EMU and EU. It is conducted by the European Commission rather than Eurostat, the compiler of most other EMU data. The index is a broad measure of both business and consumer sentiment in the EU members. Because of its coverage of all the EU countries it is highly regarded in the financial markets as a good indicator of the mood of consumers and industry in each country. It is also normally a good indicator of quarterly GDP.
Confidence indicators are calculated for industry, services, construction, retail trade and consumers. In turn, they are combined into an overall composite number, the economic sentiment indicator (ESI). The data are seasonally adjusted and defined as the difference (in percentage points of total answers) between positive and negative answers. The survey also covers other areas of the economy that are not explicitly included in the ESI. In particular, responses to questions about the inflation outlook are used by the ECB as one means of measuring inflationary expectations.