EMU: EC Economic Sentiment

Tue Feb 27 04:00:00 CST 2018

Consensus Actual Previous Revised
Ec. Sentiment 113.7 114.1 114.7 114.9
Ind. Sentiment 8.0 8.0 8.8 9.0
Cons. Sentiment 0.1 0.1 1.3 1.4

The economic sentiment index (ESI) fell for a second month in a row in February. A 0.8 point slide to 114.1 from a marginally stronger revised January reading was the second drop in a row and left the index at a 3-month low. However, the outturn was still above market expectations.

The headline decrease reflected a mild deterioration in morale in most sectors. Industry (8.0 after 9.0) and consumers (0.1 after 1.4) led the way but both retail (4.3 after 5.2) and construction (4.2 after 4.7) followed suit. The only exception was services (17.5 after 16.8) where confidence reversed more than half of January's 1.2 point decline.

Regionally amongst the four large members, just Italy (111.6 after 110.1) posted a rise in its national ESI. France (109.7 after 112.4) saw a relatively sizeable fall and there were smaller declines in both Germany (114.4 after 116.0) and Spain (110.2 after 110.9). Even so, all remain well above the common 100 long-run average.

Meanwhile, inflation developments were slightly disappointing. Hence, expected selling prices in manufacturing edged 0.2 points firmer to 12.6 but recovered only part of January's decline. Services (9.5 after 9.8) were slightly softer while household inflation expectations (18.0 after 19.6) fell more appreciably, albeit after a healthy bounce last time.

The latest ESI results are in keeping with those from the flash PMI surveys which also pointed to some limited cooling in mid-quarter Eurozone economic growth. This will not concern the ECB as current readings are still historically very strong. However, the central bank will be less happy with the inflation update which suggests that attaining its price stability goals has not got any easier.

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.