Sentiment improved further in October. The Economic Sentiment Indicator came in at 97.8, up by 0.9 point with respect to the previous month. However, the improvement was not spread among all major countries and the pace of increase moderated. The recovery remains fragile and uneven and needs to be strengthened.
Sentiment kept on progressing in October according to the Business and Consumer Surveys’ results released this morning. The Economic Sentiment Indicator (ESI), a good track of GDP growth, came in at 97.8, up by 0.9 point with respect to the previous month. The sector breakdown shows, however, that the improvement was not broad based. While industrial confidence, driven by rising orders, better assessment of inventories and improving production expectations, rose further, confidence in the services, retail and construction sector declined.
At first sight this data seem to contrast with the results of the PMI survey released last week. The Composite PMI indeed moderated in October (see Ecoflash, 24/10/2013) reflecting an activity slowdown in the services sector, while the pace of growth in the manufacturing increased. As stressed above, the EC survey showed a similar path. Yet, given the weight of the industrial sector (40% the largest weight), the ESI rose in October. By contrast the weights in the Composite PMI mirror the importance of the manufacturing and services sectors across the eurozone based on gross value added data from Eurostat. Services indeed account for around 67% of the Composite PMI, while they account for just 30% in the ESI.
In addition, the pace of improvement of the ESI decelerated in October, and the country breakdown showed some divergence, with the ESI rising in France and Germany and declining in Italy and Spain.
Employment indicators showed some signs of improvement, at least in the manufacturing sector. However, they remain consistent with a contraction of employment although at a slower pace. Lastly the survey did not denote any price pressure.
To sum up, today’s data, although positive, remind us that the recovery needs to be strengthened. As fiscal policy is constrained by the ongoing consolidation of public finances, the eurozone has no alternative but to rely on monetary policy. However, although the appreciation of the euro and the reduction of excess liquidity are adding further pressures on the ECB, we do not expect any major change at next week ECB’s Governing Council meeting.
To Read the Entire Report Please Click on the pdf File Below.
Sentiment kept on progressing in October according to the Business and Consumer Surveys’ results released this morning. The Economic Sentiment Indicator (ESI), a good track of GDP growth, came in at 97.8, up by 0.9 point with respect to the previous month. The sector breakdown shows, however, that the improvement was not broad based. While industrial confidence, driven by rising orders, better assessment of inventories and improving production expectations, rose further, confidence in the services, retail and construction sector declined.
At first sight this data seem to contrast with the results of the PMI survey released last week. The Composite PMI indeed moderated in October (see Ecoflash, 24/10/2013) reflecting an activity slowdown in the services sector, while the pace of growth in the manufacturing increased. As stressed above, the EC survey showed a similar path. Yet, given the weight of the industrial sector (40% the largest weight), the ESI rose in October. By contrast the weights in the Composite PMI mirror the importance of the manufacturing and services sectors across the eurozone based on gross value added data from Eurostat. Services indeed account for around 67% of the Composite PMI, while they account for just 30% in the ESI.
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In addition, the pace of improvement of the ESI decelerated in October, and the country breakdown showed some divergence, with the ESI rising in France and Germany and declining in Italy and Spain.
Employment indicators showed some signs of improvement, at least in the manufacturing sector. However, they remain consistent with a contraction of employment although at a slower pace. Lastly the survey did not denote any price pressure.
To sum up, today’s data, although positive, remind us that the recovery needs to be strengthened. As fiscal policy is constrained by the ongoing consolidation of public finances, the eurozone has no alternative but to rely on monetary policy. However, although the appreciation of the euro and the reduction of excess liquidity are adding further pressures on the ECB, we do not expect any major change at next week ECB’s Governing Council meeting.
To Read the Entire Report Please Click on the pdf File Below.
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