Much as expected, economic sentiment was little changed this month according to the EU Commission's new survey. At 103.5 the headline index was down just 0.3 points versus its unrevised May outturn although this was still soft enough to constitute a 4-month low. Sentiment on this measure has been within a tight 1.6 point range since February.
Amongst the main sectors morale was down 0.4 points at minus 3.4 in industry and a sharper 2.6 points weaker at minus 1.1 in retail. However, confidence in both the consumer sector (minus 5.6) and services (7.9) held steady and construction (minus 24.2 after minus 25.0) posted a modest rise.
Regionally for the larger states the only change in sentiment of note was in Spain, which saw a 2.0 point drop to 108.4. France (98.5), Germany (105.0) and Italy (106.5) saw minor changes of less than 1 point and France was again the only member of this group on the wrong side of the common 100 long-run norm.
Inflation news continued moderately positive. Hence, Eurozone expected manufacturing selling prices rose from minus 0.6 to 0.0, their fifth consecutive gain but still well short of their 5.1 long-term average. Expected service provider charges were up a larger 1.6 points at 4.2, also their fifth rise in as many months and promisingly now stand 1.2 points above their historic mean. Meanwhile, consumer inflation expectations were up again but a 7-month high of 4.8 remained still comfortably below their long-term average (19.9).
Once again the ESI survey offers some signs that ECB policy is achieving its aims while at the same time underlining the considerable amount of work still to be done. Deflations risks are subsiding but growth seems to be stalling and could yet become a renewed threat to medium-term price stability goals.
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.
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