29 January 2018

January 2018: Economic Sentiment edges down slightly from 17-year high

Euro area developments

The softening of euro-area sentiment resulted from markedly lower confidence in services and retail trade, while confidence in industry remained stable. By contrast, confidence increased among consumers and, in particular, construction managers. Amongst the largest euro-area economies, the ESI rose in Spain (+0.9), the Netherlands (+0.9) and Germany (+0.6) but decreased markedly in France (-2.4) and Italy (-1.7).

The flat development of industry confidence (+0.0) resulted from managers' more optimistic views on the current level of overall order books, being counterbalanced by their worsening assessment of stocks of finished products and broadly unchanged production expectations. Regarding the questions not included in the confidence indicator, managers' appraisals of the past production worsened markedly, while their views on export order books improved slightly. The marked decline in services confidence (-1.3) was driven by managers' more pessimistic demand expectations, with broadly stable assessments of past demand and the past business situation. Increasing consumer confidence (+0.8) was fuelled by a strong improvement in households' unemployment expectations, while their expectations regarding their financial situation became slightly more negative. Households' assessment of the general economic situation and their savings expectations remained unchanged. Lower retail trade confidence (-1.0) was the result of retailers' more positive views on the expected business situation being more than offset by their markedly worsened assessment of the present business situation and the adequacy of the volume of stocks. Construction confidence (+1.5) surged thanks to managers' more positive assessment of the level of order books and, to a somewhat lesser extent, their increasing employment expectations. The steep improvement in financial services confidence (+3.4), which is not included in the ESI, reflected managers' more optimistic appraisals of the past business situation and past demand, while their assessment of demand expectations remained broadly flat.

Employment plans were revised up strongly in services (17-year high) and, to a lesser extent, in retail trade (alltime high) and construction (10-year high), while employment plans in industry edged lower from their 30-year high of December. Selling price expectations increased slightly in retail trade and more markedly in services and construction while softening somewhat in industry. Consumer price expectations surged in January, reaching a 5- year high.

EU developments

The slightly softer decline of the EU ESI (-0.4) resulted from a steep improvement of sentiment in Poland (+5.0), while the ESI decreased in the largest non-euro area EU economy, the UK (-0.7). As opposed to the euro area, construction confidence in the EU decreased slightly due to plummeting confidence in the UK. In line with the euro area, confidence among consumers and in financial services improved in the EU, while it worsened in retail trade and services. Further in line with the euro area, EU confidence in industry remained broadly unchanged.

As in the euro area, EU managers in services and retail trade reported upward revisions in their employment expectations, while industrial managers corrected their expectations markedly downwards. In contrast to the euro area, employment plans in construction saw a downward revision. Price expectations were in line with those for the euro area for the services sector, while they increased in industry, decreased strongly in retail trade and remained broadly unchanged in construction.

Full press release

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