The latest economic sentiment indicator (ESI) and employment expectations indicator (EEI) suggest a cautiously optimistic start to 2025 for the euro area. The 1.5-point rise in ESI (to 95.2), while still below its long-term average, signals renewed confidence in industry, construction, and services, though retail trade sentiment declined. The 1.6-point rebound in EEI (to 98.8) suggests employment prospects are stabilising, particularly in retail and construction, supporting labour market resilience. Across key Euro Area economies, sentiment rose sharply in France (96.2 after 92.9), Germany (88.1 after 86.9), Italy (100.2 after 98.4), and Spain (104.4 after 102.9).

Industry sentiment improved (1.1), largely due to stronger production expectations, but export order books weakened, hinting at external trade challenges. Similarly, services confidence edged up (0.4) as past demand improved, though future demand concerns persist. Construction confidence rose (1.4), but labour shortages and weak demand reached their highest levels since 2016, posing long-term risks.

Retail confidence dipped (minus 0.5) due to pessimistic future expectations, despite better past business performance. Meanwhile, consumer confidence remained stable, reflecting mixed economic perceptions-while expectations for national economic conditions improved, household financial concerns and spending intentions remained unchanged.

Notably, selling price expectations increased across industries, suggesting continued inflationary pressures, though consumer price expectations for the next 12 months eased. This latest update takes the RPI to minus 4 and the RPI-P to minus 2, meaning that economic activities are generally in line with the expectations of the Euro Area.

No relief in the gloom: Economic sentiment is expected to weaken to 93.5 in January from 93.7 in December. Industry sentiment is expected down to minus 14.2 versus minus 14.1.

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.