Eurozone economic sentiment (ESI) was little changed this month according to the EU Commission's new survey. At 103.7 the ESI was just 0.2 points below its unrevised March print, its first fall since November last year but also its second highest level since July 2011.
That said, the relative stability of the headline index masked a slight deterioration in morale in the industrial sector (minus 3.2 after minus 2.9) and a more marked drop in consumer confidence (minus 4.6 after minus 3.7, as indicated in the flash report). Sentiment in construction (minus 25.6 after minus 24.2) similarly worsened somewhat but retail (minus 0.8) was flat and services (6.7 after 6.1) saw their second successive rise.
Regionally the national ESI rose 1.3 points to 110.4 in Spain and held steady at 106.1 in Italy. However, both France (down 1.4 points to 97.2) and Germany (down 0.6 points to 104.5) lost ground. Once again, France was the only member of the larger four member states to post a reading below the common 100 long-run average.
As ever, financial markets will also play particular attention to the survey's inflation indicators and here the news was quite positive. The sub-indices measuring selling price expectations rose from minus 4.6 to minus 2.9 in manufacturing and from 2.4 to 26 in services. At the same time, consumer inflation expectations gained 1.5 points to 0.7, their third increase in a row. There was also another modest gain in household buying intentions.
As a result, the dip in the overall ESI, which is small enough to be largely irrelevant anyway, should not worry the ECB. Rather, the central bank should take heart from further signs that inflation expectations are moving in the right direction, albeit from historically very low levels. How much of this is attributable to January's QE announcement is impossible to quantify but inevitably the central bank will be keen to claim that policy is working.
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.