Economic sentiment improved again at the start of the year. At a surprisingly firm 99.9, the EU Commission's gauge (ESI) was up 2.8 points versus December's stronger revised reading to record its highest mark since last June. This was the third consecutive gain and puts the index only just short of its 100 long-run average.

At a sector level, gains in confidence were fairly broad-based with industry (1.3 after minus 0.6), services (10.7 after 7.7), retail trade (minus 0.8 after minus 2.7) and households (minus 20.9 after minus 22.1) all posting advances. This left only construction (1.3 after 3.6) to register a loss.

Regionally, the national ESI rose in France (98.9 after 94.5), Germany (97.9 after 95.4), Italy (102.5 after 100.8) and Spain (101.5 after 98.8). Both Italy and Spain moved back above the common 100 historical mean.

Meantime, inflation news was mixed. Hence, expected selling prices in manufacturing (31.9 after 37.8) eased for a fourth straight month and household inflation expectations (17.7 after 23.2) again fell quite sharply. However, expected selling prices in services (29.8 after 28.8) were up for the first time since September. Moreover, in line with December, all the gauges remained historically strong.

The January update will boost hopes that the Eurozone can avoid recession in 2023. More immediately, it will also be seen as strengthening the case for another 50 basis point hike in key ECB interest rates on Thursday. To this end, both the Eurozone's ECDI (23) and ECDI-P (28) indicate that economic activity in general is running faster than expected, further increasing the scope for another round of monetary tightening.

Economic sentiment has improved the last two reports and is expected to improve further in January, to a consensus 96.7 versus 95.8 in December.

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 Eurozone region. Data are available for each country and are aggregated for both the Eurozone 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.