EMU: EC Economic Sentiment

Tue Sep 29 04:00:00 CDT 2015

Consensus Actual Previous Revised
Ec. Sentiment 104.0 105.6 104.2 104.1
Ind. Sentiment -3.9 -2.2 -3.7
Cons. Sentiment -7.1 -7.1 -6.9

The EU Commission's measure of economic sentiment was stronger than expected in September. Following a marginally weaker revised 104.1 print in August, the ESI climbed 1.5 points to 105.6, its largest increase since March and its highest reading since June 2011.

September's gain, the third in a row, was largely attributable to improved sentiment in industry where the sub-index climbed 1.5 points to minus 2.2. However, there was also a tidy 2.3 point advance in service sector morale to 12.4 as well as a more modest 0.6 point increase in retail to 4.1. However, it was not all good news with sentiment in the consumer sector confirmed 0.2 points lower at minus 7.1 and in construction, 0.6 points weaker at minus 23.3.

Regionally national ESIs were up in three of the four larger states. The best performer was Italy (3.4 points) ahead of Germany (1.2 points) and France (0.9 points). However, while still showing the highest level of the group, Spain (109.5) dipped 0.9 points, its first decline in three months. Even so, in line with the August results, all four states still have readings above the common 100 long-run average.

Inflation news was mixed. On the negative side, expected selling prices in manufacturing dropped 1.3 points to minus 3.3, their lowest reading since March. However, the equivalent service sector gauge was up 0.7 points at 2.9, a 3-month high. At the same time, consumer inflation expectations were essentially flat (3.2 after 3.1) having fallen in both July and August.

Recent comments by ECB officials have tried to dampen speculation about another ECB ease (increased QE) at next month's Council meeting. However, with price developments still soft (tomorrow's September flash inflation report is expected to see the third decline in four months) financial markets are unlikely to be wholly convinced. As a result, while today's survey results may take a little of the pressure off the central bank for immediate action, speculation will probably remain biased on an increase in asset purchases being not so much a case of if, but when.

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.