EMU: EC Economic Sentiment

Tue Jan 30 04:00:00 CST 2018

Consensus Actual Previous Revised
Ec. Sentiment 116.2 114.7 116.0 115.3
Ind. Sentiment 8.9 8.8 9.1 8.8
Cons. Sentiment 1.3 1.3 0.5

The EU Commission's yardstick of economic sentiment (ESI) proved unexpectedly soft this month. At 114.7, the headline index was 0.6 points short of its downwardly revised December reading albeit still 0.7 points above November's outturn. This was the first decline since last May.

The limited drop reflected worsening morale in services (16.7 after 18.0) and retail (5.0 after 6.0). However, confidence in industry (8.8) was unchanged from a weaker revised December print while construction (4.6 after 3.1) and households (1.3 after 0.5) both saw an improvement.

Regionally amongst the larger four states, the national ESI fell in France (111.5 after 113.9) and Italy (110.1 after 111.8) but continued to rise in Germany (116.0 after 115.4) and Spain (110.9 after 110.0). The German index is now just 2.3 points off its all-time high and all countries remain well above their common 100 long-run average.

Meantime, inflation developments were quite bullish. Manufacturers' selling price expectations (12.4 after 13.0) were a little softer than in December but still historically firm. More promisingly, their services counterpart (9.9 after 8.3) and, in particular, household inflation expectations (19.6 after 13.6) were significantly stronger.

All in all, the ECB should view these findings as quite promising. The dip in the ESI itself was only quite minor and, anyway, probably overdue after such a long positive stretch. More importantly, inflation expectations have shown further signs of firming. This may not mean that underlying Eurozone inflation is about to turn higher but it is an important, and likely necessary, step in the right direction.

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.