Economic sentiment deteriorated for a third successive month in July. At 94.5 the latest reading was down 0.8 points versus June's unrevised 95.3 and 0.5 points short of the market consensus. The latest outturn was the weakest since last October and means that sentiment has still been below its 100 long-run average since June 2022.

At a sector level, confidence declined in industry (minus 9.4 after minus 7.3), services (5.7 after 5.9) and construction (minus 3.1 after minus 2.4). However, there were gains in retail trade (minus 4.5 after minus 5.9) and the consumer sector (minus 15.1 after minus 16.1)

Regionally, the national ESI declined in France (94.3 after 96.6) and Germany (91.2 after 93.3) but rose in Spain (100.9 after 99.6) and was broadly stable in Italy (101.4 after 101.3).

Inflation developments were mixed. Expected selling prices fell again in manufacturing (3.4 after 4.3) but rose in services (16.5 after 16.1). Household inflation expectations (4.8 after minus 6.0) also moderated.

Today's update points to sluggish economic growth this quarter. That will not worry the ECB but the central bank will be keeping a wary eye on prices in the service sector, the main threat to its 2 percent medium-term target. The weaker than anticipated report leaves the Eurozone ECDI (minus 34) and ECDI-P (minus 43) deep in negative surprise territory and so underlines the significant ongoing underperformance by the region's economic activity in general.

Economic sentiment in July is expected to edge yet lower to 95.0 from 95.3 in June which was the weakest result since November last year.

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.