Economic sentiment unexpectedly deteriorated in mid-quarter. At 95.4, the EU Commission's gauge was more than a full point short of the market consensus and 7 tenths below its marginally lower revised January mark. This was its second straight decline and its weakest level since last November.

The headline drop reflected fresh losses in confidence in industry (minus 9.5 after minus 9.3), retail trade (minus 6.7 after minus 5.6), construction (minus 5.4 after minus 3.4) and, in particular, services (6.0 after 8.4), By contrast, the household sector (minus 15.5 after minus 16.1) saw a modest improvement.

Regionally, national sentiment worsened in France (97.6 after 97.9), Germany (89.0 after 89.6), Italy (99.2 after 100.8) and Spain (102.4 after 102.6). This left just Spain among the larger four economies above the common 100 historic norm.

Meantime, inflation developments were mixed. Hence, while expected selling prices fell in manufacturing (3.8 after 4.4) and in services (17.5 after 20.2), inflation expectations in the household sector (15.5 after 12.0) climbed to their highest mark since last March.

The ESI report is in keeping with the flash PMI data which also pointed to a possible contraction in Eurozone GDP this month. However, the ECB, which follows the ESI closely, will be more interested in the expected inflation components and here, with the 2024 wage round currently underway, it will be less than impressed by the jump in the household sector. Accordingly, a surprisingly soft headline index should do nothing to bolster the chances of an early cut in interest rates. Today's update puts the region's RPI at 14 and the RPI-P at 16, meaning that economic activity in general is running slightly ahead of market expectations.

Economic sentiment in February is expected to rise to 96.7 from January's 96.2 which remained well short of the 100 long-run average.

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.