Economic sentiment continued to worsen in September. At 93.3 the headline index was actually slightly stronger than the market consensus but, following an upwardly revised 93.6 in August, still saw its fifth decline in as many months. The latest reading was the weakest since November 2020 and 6.7 points below its long-run average.

At a sector level, performances were mixed. Hence, while confidence improved in industry (minus 9.0 after minus 9.9), it deteriorated in services (4.0 after 4.3), retail trade (minus 5.7 after minus 5.1) and construction (minus 6.2 after minus 5.4). It was also weaker in the household sector (minus 17.8 after minus 16.0).

Regionally, the national ESI rose in France (95.9 after 93.2) and Germany (89.0 after 88.7) but fell in Italy (97.9 after 100.1) and in Spain (99.0 after 102.2). This means that all the large four economies are back below the common 100 long-run average.

In terms of inflation developments, expected selling prices fell in services (15.3 after 16.5) but moved higher in manufacturing (3.6 after 3.1) for the first time in 2023. In addition, household inflation expectations (12.0 after 9.1) climbed to a 4-month high while buying intentions declined to a 6-month low.

Today's update keeps alive the chances of a negative handle on Eurozone third quarter GDP growth. However, the ECB's hawks will not be happy with the latest inflation signals and are likely to remind financial markets that the peak to interest rates might not yet have been reached. Still, the September data put the Eurozone RPI at exactly zero and the RPI-P at 1. In other words, economic activity is general is now running much as expected.

Economic sentiment in September is expected to fall to 92.5 from 93.3 in August which was down from 94.5 in July.

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.