Economic sentiment in the European Union (EU) has hit its highest level for a decade. The latest Economic Sentiment Index (ESI) figures released by the European Commission (EC) this morning show that the figure increased by 1.1 points in both the euro area and the EU.
This takes it to levels last seen in the summer of 2007 (113.0 points in both regions). Eurozone sentiment firmed on the back of higher industry, retail trade and construction confidence. Sentiment in services and among consumers, by contrast, remained virtually unchanged.
The ESI rose in all of the largest euro-area economies, most so in the Netherlands (+1.9) and Italy (+1.8), followed by Spain (+0.6), Germany (+0.5) and France (+0.4).
Industry confidence rallies
Industry confidence (+1.6) continued the rally it started last autumn, adds the EC. This is thanks to managers' higher production expectations and improved appraisals of the current level of overall order books, it explains. Assessments of the stocks of finished products, however, remained flat.
Financial services confidence (a measure not included in the ESI) slipped (-6.8). This was due to markedly worsened assessments of the past business situation and past demand. These were only weakly counteracted by somewhat improved demand expectations, says the EC.
Employment plans remained broadly unchanged in industry, services and retail trade. They were revised upwards in construction. Selling price expectations firmed across all surveyed sectors, in line with higher price expectations among consumers.
The eurozone economy is looking stronger than it has in a long time, comments Bert Colijn of ING. As [ECB president Mario] Draghi is about to announce his plans for QE (quantitative easing) in 2018, the economy is far from an argument to keep QE going at the current pace, he says.
“Consumer confidence even reached its highest level since 2001 this month,” he adds.
For Colijn, the main issue remains inflation itself. Pipeline inflation pressures are building as wage growth ticked up in the second quarter, he observes. The job market recovery is slowly but surely working its way through to wage pressures.