September’s results of the European Commission business and consumer survey were not very encouraging. The Economic Sentiment indicator dropped by 0.7 to 99.9, plugging to its lowest level since November 2013. After stabilising in the second quarter, GDP growth was probably subdued in the third quarter as well.
September’s results of the European Commission business and consumer survey were not very encouraging. The Economic Sentiment indicator dropped by 0.7 to 99.9 in September, its lowest level since November 2013. Over the quarter, the ESI lost more than 1 point. Other surveys, such as the PMI, provided a similar message: although still consistent with growth, output is losing momentum. After stabilising in Q2, where temporary factors weighed on activity, GDP growth might have expanded by just 0.1% in Q3.
Survey details showed that confidence decreased in the industrial sector (40% of the ESI, the highest weight), among consumers while it inched up in services. The decline of confidence in the industry came with no surprise. Geopolitical tensions weighed significantly on this high-cyclical sector, particular in Germany highly exposed to Eastern-Europe. In two months confidence in the German industry sector lost almost 3 points. According to the survey, foreign orders declined significantly. Consumers were less optimistic regarding future output and their fears of unemployment increased. For the time being they do not seem in a hurry to increase significantly their purchases as prospects for activity remain poor, employment growth is lackluster and savings have been significantly eroded during the crisis.
The survey confirms the total absence of price pressures; firms selling prices expectations continued to lose ground and the pace of the slowdown accelerated, while consumer inflation expectations 1- year ahead eased further.
As said, Q3 GDP growth activity was probably subdued. A more accommodative monetary policy stance, less fiscal tightening measures and the ongoing depreciation of the currency should sustain activity going forwards. Yet, do not expect a sharp increase in activity in the short run; these measures will fully affect the economy with some lags.
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