IP/06/1141
Brussels, 31st August 2006
August 2006: Economic sentiment weakens in both the EU and the euro area After an almost continuous rise over the last 14 months, the Economic Sentiment Indicator (ESI) fell by more than a point in both the EU and the euro area. However, at 108.4 for the EU and at 106.7 for the euro area, the indicator continues to perform well above its long term average. As there was not a full set of national data on which to base the August results, it will only become apparent in the coming months whether this setback was only temporary, or whether it points to a change in the development of economic sentiment. Economic sentiment indicator (s.a.) EU: Aug. 108.4
Euro area: Aug. 106.7
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The monthly economic sentiment indicator reflects general economic activity of the EU. This indicator combines assessments and expectations stemming from business and consumer surveys. The surveys are conducted in different sectors of the economy: industry, services, construction and retail trade as well as consumers.
The decline in the sentiment indicator for the EU can be explained by the developments in the industry sector, where the confidence indicator fell by 2 points. By contrast, managers in the services sector have become slightly more positive, while confidence among builders, retailers and consumers remained unchanged. In the euro area, managers in the industrial and construction sectors became less positive, whereas consumers’ and service sector managers' confidence did not change.
At the country level, the picture is diverse. Spain recorded an increased ESI of 2.6 points, while sentiment fell in all other larger Member States, ranging from a 1.5 point drop in Germany to a 10.8 point drop in Poland. Note: there are no French data available for August, as no surveys were conducted in any of the five constituent sectors.
Industrial confidence indicator (s.a.)
EU: Aug. 1
Euro area: Aug. 2
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The industrial confidence indicator fell by 2 points in both the EU and the euro area, having risen strongly since the second quarter of 2005. Notwithstanding this setback, the indicator is still about 10 points above its long term average.
The fall in confidence is mainly due to production expectations turning less positive. Managers’ assessment of order books and stocks of finished products have not changed much compared to last month.
At the country level, most of the larger EU Member States reported a fall in industrial confidence: Germany (-1), Spain (-3), Italy (-3) and the UK (-5). Polish confidence, however, remained unchanged in August.
Service confidence indicator (s.a.)
EU: Aug. 19
Euro area: Aug. 19
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Confidence in the services industries remained broadly stable in August, showing a small improvement in the EU and unchanged confidence in the euro area. The almost horizontal movements over the recent months point to a stabilisation at levels just above the long term average.
Looking at the components of the confidence indicator, EU and euro area managers in the services sector confirmed their assessment of the expected evolution of demand, while their assessment of the recent evolution of demand improved slightly. The assessment of the current business situation was revised downwards in the EU by 1 point and in the euro area by 3 points.
Among the larger Member States, Spain and the UK saw their confidence indicators strengthen by 11 and 2 points, respectively, while German, Italian and Polish managers reported a drop in confidence by 3, 1 and 4 points, respectively.
Consumer confidence indicator (s.a.)
EU: Aug. -7
Euro area: Aug. -8
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Consumer confidence in the EU and in the euro area remained stable in August. Consumers may be consolidating their increased optimism, which has strongly increased since in the middle of 2005.
The components of the indicator show that consumers do not expect major changes in either their own financial situation or the general economic situation. With regard to their own savings, consumers have adjusted their expectations downwards, but the prospects on employment were assessed slightly more positively than in July.
At the country level, the results are also fairly stable. Of the larger Member States, only Italy registered a somewhat pronounced drop in confidence of 2 points.
Retail trade confidence indicator (s.a.)
EU: Aug. 1
Euro area: July -1
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After the drop in July, retail confidence in the EU remained stable in August. Because some national results are missing, principally from France and Italy, no euro area results are available yet. And given the relatively high volatility of the indicator, the incomplete picture does not yet provide firm evidence on future prospects in the retail trade sector.
Available data on components of the confidence indicator were broadly stable as well. Retailers' valuation of both their present and future business situation remained unchanged, whereas their assessment of the volume of stocks improved slightly.
The data available for the larger Member States point to a broadly positive development. In Spain confidence grew by another 8 points after having already experienced an increase of 10 points in July. The UK registered an improvement of 2 points, while confidence among German retailers remained unchanged. Only in Poland did retailers become slightly less confident.
Construction confidence indicator (s.a.)
EU: Aug. 0
Euro area: Aug. 0
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In the EU, the construction confidence indicator remained unchanged, while in the euro area it fell slightly by 1 point.
The stability in the confidence indicators, however, was a result of contrasting developments in the underlying components: construction managers became more negative in their assessment of the order books, but expressed more positive expectations with regard to the employment situation.
[Graphic in PDF & Word format]
At the country level, the available data point to mixed developments. Builders in Germany and the UK reported an improvement of sentiment by 1 and 2 points, respectively. Polish builders, by contrast, have become slightly less confident, while their Spanish counterparts have become drastically less so, with a 12-point decrease in confidence. [Graphic in PDF & Word format]
The next Business and Consumer Survey is due to be published on 29 September 2006.
Full tables are available on:
http://ec.europa.eu/economy_finance/indicators/businessandconsumersurveys_en.htm
