Friday, July 31, 2009

Eurozone economic sentiment continues to recover in July

July 31, 2009
The Economic Sentiment Indicator (ESI) for the European Union (EU) and the euro area improved further in July, the fourth consecutive increase in both areas since the trough in March, the EU executive Commission said on Thursday.

However, in both areas, the level is still far below the long-term average. The ESI increased by 3.9 points in the EU to 75, and by 2.8 points in the euro area to 76 points.

Recovery of the industrial confidence indicator continued, backed by a further improvement in production expectations and normalisation in the level of stocks, the Commission said.

Manufacturers' order books finally showed some improvement after a slide that has lasted more than a year.

But both stocks of finished goods and production expectations remained below their long-term averages and, more importantly, industrial activity remained weak, as manifested by the all-time low level of capacity utilisation, it said.

The increase in the ESI resulted from a general improvement in sentiment in all sectors, except construction.

Services notably improved in the EU by 3.6 points and to a lesser extent in the euro area by 2.1 points.

Retail trade rose by 2.9 points in the EU and 3.5 in the euro area, while industry continued its improvement from the trough in March by 2.7 and 2.2 points, respectively.

Likewise, sentiment among consumers picked up again by 1.9 in the EU and 2.1 in the euro area.

Construction, in contrast, remained at June levels.

The majority of the EU member states registered an improvement. Among the largest member states, Britain saw a 5.0-point rise, followed by Spain with 3.9 points, Italy 3.5 and Germany 3.2. But the rise was a marginal 0.3 in France, 0.2 in the Netherlands and 0.1 in Poland.

The financial services confidence indicator - not included in the ESI - moved up by 2.0 points in both areas. While managers' assessment of the business situation and demand over the past three months improved markedly, expectations of demand for the next three months decreased substantially compared with the improvement registered last month.

In a separate report, the Commission said the Business Climate Indicator (BCI) continues to recover in July in both the EU and the euro zone, but noted the level was still very low, even when compared to the previous historical lows of 1993.

"This suggests that year-on-year industrial production growth will have been negative in June and will remain subdued in July," said the Commission.

The rise in the BCI reflected an overall easing. In particular, both order books and export order books finally showed some signs of improving.

Managers' production expectations and their perception of the production trend observed in recent months picked up for the fourth month in a row.

Their opinion of stocks of finished goods improved as well, even though the level of stocks was still considered excessive.