Economic sentiment recovered surprisingly strongly at the end of 2023. At 96.4, the EU Commission's gauge was up sharply from a slightly stronger revised 94.0 in November and some 2.3 points above the market consensus. This matched the highest reading since last April but still leaves the measure well short of its 100 long-run average.

The headline improvement reflected broad-based gains in confidence. Hence, there were rises in industry (minus 9.2 after minus 9.5), services (8.4 after 5.5), retail trade (minus 5.7 after minus 7.1), construction (minus 3.6 after minus 4.4) and in the consumer sector (minus 15.0 after minus 16.9).

Regionally, national sentiment indices rose in Germany (91.6 after 89.2), Italy (99.3 after 96.7) and Spain (101.4 after 99.0). Accordingly, among the big four members, France (95.4 after 95.9) was the only country to post a decline. That said, just Spain was above the common 100 historic norm.

Inflation developments were on the firm side. Expected selling prices rose in manufacturing (3.2 after 2.4) and, for a third consecutive month, in services (18.1 after 17.7). In addition, inflation expectations were also up in the household sector (10.5 after 9.3).

The December data are likely to be met with a mixed response at the ECB. The improvement in overall sentiment will be welcome but, while still historically low, the deterioration in the inflation outlook found in all the three major sectors may ring some alarm bells. Certainly, today's report will not pull forward the timing of the widely anticipated first cut in policy rates. The latest data put the region's RPI at 14 and the RPI-P at 28 meaning that recent overall economic activity is still running somewhat faster than anticipated.

Economic sentiment in December is expected to rise to 94.1 from 93.8 in November which was up slightly from 93.5 in October to end six straight declines.

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.