Euro Zone: Stable confidence according to the European Commission

Confidence stabilised in July, according to the European Commission Business and Consumer survey results released this morning. The closely watched Economic and Sentiment Indicator came in at 102.2, that is 0.1 point above the June reading. This confirms the ongoing recovery in the eurozone. Yet its pace remains quite low and a case of concern

Confidence stabilised in July, according to the European Commission (EC) Business and Consumer survey results released this morning. The closely watched Economic and Sentiment Indicator (ESI) came in at 102.2, that is 0.1 point above the June reading.
Today’s results contrast a little bit with what reported by the PMI surveys released last week. The Composite PMI increased in July, signaling that output growth accelerated at the beginning of the third quarter. In addition, the details of the surveys were rather divergent. According to the PMIs, the acceleration came essentially from the services sector; this is a rather encouraging sign, as this sector, which accounts for the largest part of GDP, is more domestically oriented, suggesting that the recovery is becoming more self-sustained. By contrast, details of the EC survey showed that manufacturing did better than services. Consumer and retail confidence indices also declined in July. Therefore, according to the EC survey, domestic demand remains highly fragile. Not surprisingly, employment is far from recovering according to the EC survey, particularly in the services sector, as businesses are far from confident regarding the future outlook of the economy. In this environment they prefer to wait rather than launch new investment or hire new staff. Lastly regarding prices, the EC survey confirmed the total absent of price pressures. Selling prices expectations remained broadly stable in the industry and retail sectors, while they declined in the services. A combination of weak recovery, combined with large spare capacities, is weighing on price dynamics. Inflation is likely to remain well below 1% for a while.
To sum up, although todays’ figures suggest that the recovery continued in Q3, its pace remains quite low and a case of concern. Hopefully, the accommodative monetary policy stance followed by the ECB will boost credit, growth and inflation. A lower value of the currency, due to different paths of monetary policies followed by the Fed and the BoE from one side, and the ECB from the other, should also support output going forwards.

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