The EU Commission's economic sentiment index (ESI) signalled a modest improvement in overall confidence this month. At 104.0, the headline index was up 0.5 points versus its June outturn, its first increase since March and its highest level since June 2011.
The modest rise was largely attributable to increased optimism in the goods producing sector (minus 2.9 after minus 3.4) and services (8.9 after 7.9). Retail (1.0 after minus 1.3) and construction (minus 23.9 after minus 24.2) also registered gains but consumer confidence (minus 7.1 after minus 5.6) deteriorated as indicated in the flash report.
Amongst the larger four countries, the national ESI was up 0.8 points at 99.3 in France and gained 1 point to 106.0 in Germany. Spain advanced 0.3 points to 108.7 but Italy dipped 0.1 points to 106.4. Despite moving closer, France was again the only member of this group to fall short of the common 100 long-run average.
However, if the increase in the overall ESI will be welcomed by the ECB the central bank will not be so happy with the inflation update. Hence, expected selling prices in services (2.2 after 4.2) fell to their lowest level since February and consumer price expectations (4.2 after 4.8) saw their first decline in six months. Manufacturers' price expectations (0.0) were unchanged.
Accordingly the July findings are mixed. Eurozone growth would seem to be heading in the right direction, but painfully slowly - the ESI has been within a 103.5-104.0 range since March and inflation is still a long way off its near-2 percent medium-term target. The bottom line is that the ECB's QE programme still has a lot of work to do and it may yet be that the current E60 billion a month of asset purchases has to be raised before the end of its allotted term in September 2016.
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.