Economic sentiment improved by more than expected this month. At 96.6, the headline gauge rose 0.6 points versus a marginally firmer revised July post to secure its highest level since May 2023. However, it remains well short of its 100 long-run average and the trend is still little more than flat.

At a sector level, confidence strengthened in industry (minus 9.7 after minus 10.4), services (6.3 after 5.0) and in retail trade (minus 8.1 after minus 9.1). However, there were modest losses in both the household sector (minus 13.5 after minus 13.0) and construction (minus 6.5 after minus 6.4).

Regionally, national sentiment worsened in Germany (90.5 after 92.2) and Italy (98.9 after 100.1) but improved sharply in France (99.4 after 95.1) and also made ground in Spain (105.4 after 104.1). Accordingly, among the four larger economies, only Spain is now on the right side of the common 100 historic mean.

Inflation expectations were mixed. Hence, expected selling prices in manufacturing fell from 6.7 to 6.1 and so fully unwound July's spike but edged minimally firmer in services (12.4 after 12.3). At the same time, inflation expectations in the consumer sector (11.3) were unchanged and matched an 8-month low.

The August update points to another month of at best modest growth of Eurozone GDP. Consequently, with inflation expectations seemingly reasonably well anchored, financial markets should continue to discount another 25 basis point cut in key ECB interest rates in September. That said, today's report lifts the Eurozone RPI to minus 2 and the RPI-P to minus 3, both measures showing recent overall economic activity essentially moving in line with market expectations.

Economic sentiment in August is expected to be little changed at 95.9 from July's 95.8 which extended a long flat trend 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.