Economic sentiment deteriorated for a fourth straight month in August. At 93.3 the latest reading was down from July's unrevised 94.5 and 0.6 points short of the market consensus. This is the weakest reading since November 2020 and now 6.7 points below the long-run average.

At a sector level, declines were broad-based. Confidence fell in industry (minus 10.3 after minus 9.3), services (3.9 after 5.4) and in the consumer sector (minus 16.0 after minus 15.1). Losses were also reported in construction (minus 7.7 after minus 6.6) and retail trade (minus 4.5 after minus 3.9)

Regionally, the national ESI declined in France (91.4 after 93.9), Germany (88.6 after 91.0) and Italy (100.3 after 101.4) but rose again in Spain (102.4 after 100.9). The two larger economies duly remain well below the common 100 long-run average.

Inflation developments were not what the ECB would have wanted. Hence, expected selling prices ticked higher in manufacturing (3.6 after 3.4) and, for a second straight month, in services (16.7 after 16.5) while household inflation expectations (9.0 after 4.9) climbed quite sharply to a 3-month high.

Today's update increases the chances of a negative handle on Eurozone third quarter GDP growth, a view supported by the flash August PMI survey. That will not worry the ECB's hawks, especially with inflation expectations moving up, but will still widen splits with the Governing Council doves who believe interest rates are already high enough. Tomorrow's flash HICP report for August remains key. The August data push the Eurozone ECDI (minus 21) and ECDI-P (minus 24) further into negative surprise territory, reinforcing the underperformance by the region's economic activity in general.

Economic sentiment in August is expected to fall back to 93.9 from 94.5 in July which was a full point improvement from June.

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.