Economic sentiment surprisingly deteriorated in mid-quarter. At 99.7, the February reading was 1.3 points short of the market consensus and 0.1 point below its minimally weaker revised January print. What was the measure's first decline since last October also left it marginally beneath its 100 long-run average.

At a sector level the picture was somewhat mixed. Hence limited losses in confidence in industry (0.5 after 1.2) and services (9.5 after 10.4) contrasted with modest gains in retail trade (minus 0.1 after minus 0.7), construction (1.8 after 1.4) and in the household sector (minus 19.0 after minus 20.7).

Regionally, the national ESI eased in France (97.1 after 98.6) and Spain (99.5 after 101.5) but rose in Germany (97.9 after 95.4) and was flat in Italy (102.5). Only Italy now stands above the common 100 historical mean.

Meantime, inflation news was quite positive. Hence, expected selling prices in manufacturing (23.8 after 31.3) fell sharply again and for a fifth straight month and also declined, if less markedly, in services (27.2 after 29.5). However, household inflation expectations (17.7 after 17.8) were only essentially unchanged and all the gauges remained historically strong.

The February update offers a reminder that near-term Eurozone growth prospects remain sluggish at best. Still, that will not worry the ECB which will be much more interested in the inflation indicators. To this end, price expectations are moving in the right direction but have some way to go to return to more normal levels. Another hike in interest rates in March is all but guaranteed. Both the Eurozone's ECDI (minus 15) and ECDI-P (minus 22) now indicate that economic activity in general is running somewhat slower than expected.

Economic sentiment has improved the last three reports and is expected to improve further in February, to a consensus 101.0 versus 99.9 in January.

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.