Eurozone: The Economic Sentiment Indicator down to 105.5 in May

Confidence in the eurozone is decreasing. The European Commission’s Economic Sentiment Indicator (ESI) eased to 105.5 in May, down for the third month in a row. The PMIs survey have shown a similar trend in May, with the Composite PMI for activity losing momentum and decreasing by more than 2 points. By contrast, the EuroCoin indicator was stable in May, signalling a GDP growth at around 0.6% q/q.

European Commission Survey details showed a mixed picture. Confidence in the industrial sector (40% of the ESI, the highest weight), which has been the main driving force of the recovery, recorded the largest monthly decline among sectors. The slowdown of global activity and the effects of the Japanese events are likely behind the May’s fall. Manufacturers are somewhat less optimistic regarding the near future. According to the survey, orders are decreasing and consequently manufacturers expect their production to moderate over the coming months.

Confidence in the more domestically oriented services sector also declined, albeit at a slower pace, while consumer confidence rose by more than 2 points. Households’ assessment of general economic conditions improved and their fears of unemployment decreased. Nevertheless, consumers remained cautious regarding spending. Their willingness to buy big-items over next 12 months continued to fall.

As regards prices, the survey showed some moderation of firms price pressures and consumer inflation expectations. The recent moderation of commodity prices largely explains this slowdown.

Lastly, the survey continues to highlight that the recovery is still unbalanced among countries. Core countries, leaded by Germany and France, are doing pretty well. Conditions are rather different among the peripheral countries, where output is contracting or barely expanding.

All in all, today’s data signal that, after the extremely positive performance of Q1, activity is losing momentum. Notice, however that eurozone indicators, albeit in moderation, remain at relatively high levels by historical standards. GDP could increase by around 0.4-0.3% over the coming quarter, that is in line or slightly above the potential growth rate of the economy.

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