EMU: EC Economic Sentiment

Mon Oct 30 05:00:00 CDT 2017

Consensus Actual Previous Revised
Ec. Sentiment 113.3 114.0 113.0 113.1
Cons. Sentiment -1.0 -1.0 -1.2
Ind. Sentiment 7.1 7.9 6.6 6.7

The EU Commission's measure of economic sentiment (ESI) registered its fifth consecutive gain in October. At 114.0, up from a stronger revised 113.1 in September, the ESI hit its highest level since January 2001 and comfortably exceeded market expectations.

The headline gain reflected a reassuringly broad-based improvement in morale. Industry (7.9 after 6.7) and services (16.2 after 15.4) made useful progress and the consumer sector (minus 1.0 after minus 1.2) also edged firmer. However, the most significant advances were recorded in retail (5.5 after 3.0) and construction (0.2 after minus 1.7). All five sectors are well above their respective long-run averages.

Amongst the four larger member states, the national ESI rose 2.1 points 114.5 in Germany and 1.0 points to 111.9 in Italy. Spain was up 0.3 points at 110.2 leaving France (110.0 after 111.6) to register the only decline.

Inflation developments were generally positive. Hence expected selling prices in services increased from 8.0 to 8.4, their fifth straight gain. In addition, household inflation expectations advanced a further 0.5 points to 14.7, their strongest mark since March. The only disappointment was manufacturing (8.6 after 10.5) which saw its first decline since April.

Nonetheless, the October results provide additional justification for the ECB's decision last week to announce a reduced QE programme for 2018. Fresh signs of an increasingly widespread and deepening economic recovery must please the central bank and the gentle pick-up in inflationary signals will be more than appreciated.

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.