EMU: EC Economic Sentiment

Fri Jan 06 04:00:00 CST 2017

Consensus Actual Previous Revised
Ec. Sentiment 106.9 107.8 106.5 106.6
Ind. Sentiment -0.7 0.1 -1.1 -6.2
Cons. Sentiment -5.1 -5.1 -6.1

The EU Commission's index of economic sentiment (ESI) saw its fourth successive rise in December. At 107.8, the indicator was up a tidy 1.2 points versus its marginally firmer revised November print and at its highest level in almost six years.

Moreover, the headline improvement reflected broad-based advances amongst the major output sectors. Hence, consumer confidence gained 1.1 points to minus 5.1, confirming its flash estimate, and morale increased 1 point to 0.1 in industry and 0.7 points to 12.9 in services. In addition, retail was up 1.7 points at 3.2 and construction 0.8 points better off at minus 12.0. This was the first time that all the sectors had seen sentiment improve since September.

However, regionally developments amongst the larger countries were more mixed. France (105.5 after 103.5) and Germany (109.6 after 108.0) saw decent rises in their respective national ESIs but Italy (104.2) was only unchanged and Spain (106.2 after 108.4) slipped to a 3-month low.

At the same time, while inflation expectations rose across the board in November, December was rather less positive. On the bright side, households posted a sizeable 2.5 point bounce to 8.8, their highest mark since March 2014. However, manufacturers' selling price expectations were just flat and services recorded a modest 0.4 point drop to 4.9.

Overall then, today's results are not quite as upbeat as first appearances suggest. Nonetheless, they are consistent with a further pick-up in economic growth, a pre-requisite for inflation to make a sustainable move towards it near-2 percent target. Last month's ECB meeting laid out the potential policy template for the year and to this end, today's report will not have any impact. That said, the latest improvement in Eurozone sentiment should be well received at the ECB and, while certainly not ruling it out altogether, should further reduce the likelihood of any additional monetary accommodation in 2017.

Released by the European Commission, the economic sentiment index (ESI) provides a broad measure of both business and consumer sentiment. Results are available for all participating countries and aggregated to the Eurozone and European Union level. The survey is very detailed and offers information on demand, output and inflation.

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.