Pre-Brexit economic sentiment was broadly stable in the Eurozone

Bert Colijn. Senior Economist at ING, notes that the Eurozone Economic Sentiment Indicator declined slightly in June from 104.6 to 104.4.

Key Quotes

“This survey was conducted before the June 24 Brexit vote and this more or less stable reading therefore indicates that economic performance prior to the vote was relatively robust. Industrial sentiment picked up, which was the fourth consecutive improvement, while the service sector experienced a decline in sentiment. Ironically, some of the countries with larger shares of trade with Britain, like Belgium, Netherlands, Germany and Malta, saw marked improvements in sentiment in June.

Indicators about economic sentiment prior to Brexit seem like tales from a distant past as the economic environment has been disrupted heavily by uncertainty surrounding the British vote to leave the European Union. Still, this number should be interpreted as an indication of how well the Eurozone economy was performing going into this uncertain period.

The economic sentiment indicator suggests that the economy was performing moderately well and remains on track for growth of about 0.3% q-o-q in Q2. This is a slowdown compared to Q1 and while it’s still strong enough to reduce unemployment, it does not seem that the Eurozone economy will be able to weather a period of uncertainty without seeing growth rates reduced in the coming quarters.

While the improvement in industry sentiment is encouraging, the decline in service sector sentiment begs caution. Domestic demand has been an important driver of Eurozone growth in recent months and the decline in service sector demand expectations and lower assessment of current demand in retail sales comes at a time when Brexit uncertainty will start to hurt trade as well.

Selling price expectations in the service sector also declined, which indicates that further weakness in core inflation in the Eurozone seems likely. This means that more weakness will likely be added to the current rate of moderate growth in this post-referendum world.”

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