EMU: EC Economic Sentiment

Wed Mar 30 04:00:00 CDT 2016

Consensus Actual Previous Revised
Ec. Sentiment 103.8 103.0 103.8 103.9
Cons. Sentiment -9.7 -9.7 -8.8
Ind. Sentiment -4.1 -4.2 -4.4 -4.1

The EU Commission's March survey found economic sentiment (ESI) worsening for a third successive month. At 103.0, the headline index was down a further 0.9 points from a marginally firmer revised February reading to yield its weakest level since February 2015.

The overall deterioration reflected mainly a less optimistic consumer sector where morale was confirmed at minus 9.7, a near-1 point fall versus mid-quarter and its lowest print since the end of 2014. However, confidence in industry (minus 4.2 after minus 4.1), services (9.6 after 10.8) and construction (minus 20.8 after minus 17.6) also moved in the wrong direction. Only retail (1.8 after 1.4) managed a rise and even this reversed less than half of February's decline.

Regionally national ESIs fell in all four larger member states. Germany (104.0 after 104.1) saw a minimal decrease and Spain (106.9 after 107.3) held up relatively well but both France (101.9 after 103.7) and Italy (103.7 after 106.1) recorded worryingly steep declines. However, at least all remained well above the common 100 long-run average.

The key inflation expectations measures painted a mixed picture. On the positive side, selling prices were seen rising in both goods industries (minus 4.6 after minus 5.6) and services (3.7 after 3.4) but inflation expectations in the consumer sector (2.1 after 3.7) dropped to a 5-month low. In addition, household buying intentions also slipped to their lowest reading since last November.

Realistically, today's results are likely to provide only a limited guide to how the ECB's easing package delivered on 10th March impacted business and consumer activity this month. They will similarly not reflect the effects of the Brussels terrorist attacks. The April report should be much more useful. Still, the ESI has a good correlation with Eurozone GDP so its latest drop is certainly consistent with, at best, no acceleration in economic growth this quarter. Inflation news is less negative but, equally, hardly bullish enough to give the ECB much cheer.

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.