EMU: EC Economic Sentiment

Tue Mar 27 04:00:00 CDT 2018

Consensus Actual Previous Revised
Ec. Sentiment 113.4 112.6 114.1 114.2
Ind. Sentiment 7.0 6.4 8.0
Cons. Sentiment 0.1 0.1 0.1

Eurozone economic sentiment (ESI) deteriorated for a third straight month in March. At 112.6, the EU Commission's yardstick was down a surprisingly large 1.6 points versus a marginally firmer revised February print to record its weakest reading since last September.

The latest decline in part reflected reduced optimism in industry (6.4 after 8.0) and services (16.3 after 17.6), the former touching a 7-month low and the latter a 5-month trough. However, morale in retail (1.6 after 4.5) also posted a marked decline. With household confidence (0.1) flat, that left construction (5.2 after 4.3) to record the only improvement.

Across the region, there were decreases in national ESIs in France (109.5 after 109.9), Germany (112.0 after 114.4), Italy (109.8 after 111.6) and Spain (109.0 after 110.2).

Inflation developments were similarly relatively soft. Hence in addition to reduced selling price expectations in both manufacturing (11.5 after 12.6) and services (8.8 after 9.6), there was also a drop in consumer inflation expectations (16.1 after 18.0) which saw a 3-month low.

March was the first time that the Eurozone ESI has posted three straight declines since the first quarter of 2016 and only the second time since August-October 2012. However, the latest reading is still historically high and well above its 100 long-run average so it is hardly indicating an end to the economic upswing. Nonetheless, the results are consistent with the recent PMI surveys in pointing to a significant deceleration in activity rates since the start of the year. Combined with a softening in inflation expectations, these results make any early QE exit by the ECB all the more unlikely.

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.