EMU: EC Economic Sentiment

Mon Jan 08 04:00:00 CST 2018

Consensus Actual Previous Revised
Ec. Sentiment 114.8 116.0 114.6
Ind. Sentiment 8.4 9.1 8.2 8.1
Cons. Sentiment 0.5 0.5 0.1

The EU Commission found economic sentiment (ESI) ending 2017 on a very positive note. At 116.0, the headline index was 1.4 points above its unrevised November reading, stronger than market expectations and at its best mark since October 2000.

The latest advance, the seventh in as many months, reflected broad-based gains amongst the components. Confidence in industry (9.1 after 8.1) recorded a new record high and the consumer sector (0.5 after 0.1) was only 1.6 points short of its historic peak. Services (18.4 after 16.4) also improved impressively as did both retail (6.2 after 4.3) and construction (2.7 after 1.5).

Regionally, the national ESI rose 1.3 points to 114.2 in France and was up 1.6 points at 116.0 in Germany, the latter now within striking distance of its 119.0 all-time high. Italy (112.1) was unchanged but Spain (110.0 after 110.8) dipped, possibly impacted by the ongoing Catalan crisis.

Disappointingly, inflation developments were generally negative. Hence, although expected selling prices rose 2.3 points to 13.4 in manufacturing, a 2017 peak, they dipped 0.3 points to 8.0 in services to mark a second successive decline. Moreover, household inflation expectations (13.6 after 16.0) dropped quite sharply and to their lowest level since August.

Consequently, today's report has mixed implications for ECB policy. Further evidence of a strengthening Eurozone economic upswing will obviously go down well, but ultimately the slide in inflation expectations will be seen as fresh proof of the need to maintain a still very accommodative monetary stance.

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.