Economic sentiment improved slightly and in line with expectations this month. At 96.0, the headline gauge was up 0.4 points versus its unrevised April mark, matching the market consensus but reversing only part of its previous 0.7 point decline. The measure now stands 4 points below its long-run average.

May's improvement was due to rises in confidence in industry (minus 9.9 after minus 10.4), services (6.5 after 6.1) and in the household sector (minus 14.3 after minus 14.7). However, retail trade (minus 6.8) was only flat and construction (6.0 after minus 5.9) marginally weaker.

Regionally, national sentiment improved in France (97.3 after 95.8), Germany (92.4 after 91.6) and Italy (100.4 after 99.6) but worsened in Spain (101.1 after 104.3). Italy and Spain were the only two of the larger four economies to post above the common 100 historic mean.

Inflation expectations were mixed. Hence, expected selling prices in manufacturing rose from 5.6 to 6.4, a 13-month peak, but fell in services for a fourth straight month from 14.0 to 13.2, the lowest outturn since August 2021. Meantime, inflation expectations in the consumers sector (12.5 after 11.6) increased to a 3-month high.

Today's update leaves the Eurozone ESI on an essentially flat trend and at a low enough level to signal only very modest growth. However, with inflation signals varied, the ECB is all the more likely to adopt a cautious approach to easing. A cut in key interest rates still seems a done deal but another in July remains unlikely. Today's data put the region's RPI at 2 and the RPI-P at 3, both indices showing economic activity in general effectively matching market forecasts.

Economic sentiment in May is expected to rise to 96.0 from April's 95.6 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.