Sharp loss of consumer confidence key factor in drop in EU economic sentiment in August

The Economic Sentiment Indicator (ESI) decreased markedly by two points in the European Union in August 2012, to 87.0, and by 1.8 points in the euro area, to 86.1, the European Commission said on August 30.

In both areas, the loss in confidence was particularly strong among consumers, retail trade and construction managers. In the services sector the loss in confidence was marked in the euro area but more contained in the EU as a whole. On the contrary, while confidence in industry decreased in the EU, it remained broadly stable in the euro area.

However, in August 2012, the Business Climate Indicator (BCI) for the euro area edged up by 0.06 points to ‑1.21. The slight increase results from an improvement in managers’ assessment of past production, export order books and the adequacy of stocks of finished products. By contrast, managers’ production expectationsand their assessment of overall order books deteriorated.

Most EU countries witnessed a drop in economic sentiment. Among the largest EU member states, sentiment worsened in Spain (-4.9), the UK (-3.1), Italy (-2.4), Poland (-1.8) and Germany (-1.0) while it improved in France (+0.4) and the Netherlands (+0.6).

Confidence in industry continued the downward trend reported since March in the EU (-1.7), although it remained broadly stable in the euro area (-0.2). In both areas, managers’ production expectations and their assessment of the current level of overall order books deteriorated – although the declines were less significant in the euro area – while managers’ assessment of the adequacy of their stocks of finished products improved.

Managers’ assessment of past production improved in both areas, while their assessment of export order books deteriorated in the EU and improved in the euro area. For the fifth consecutive month confidence in services declined in both the EU (-1.0) and the euro area (-2.3). This decline resulted from deteriorations in all the components of the indicator (i.e. past business situation, past demand and demand expectations). Confidence in retail trade decreased markedly in the EU (-3.2) and the euro area (-2.3).

Both the present and the expected business situation were clearly assessed more negatively. In the EU, but not in the euro area, developments in thecurrent volume of stocks were viewed somewhat more negatively too. In the construction sector, confidence declined sharply in the EU (-3.0) and the euro area (-4.6). The decrease was attributable to a more negative assessment of order books and employment expectations.

In both areas, employment plans were revised downwards for industry, construction and – to a lesser extent – services. By contrast, they were revised upwards in the retail trade sector. In the EU, selling price expectations decreased in services, retail trade and construction, while they increased in industry. The picture is broadly the same in the euro area with the exception of retail trade, where managers’ selling price expectations edged up.

Consumer confidence weakened in both the EU and the euro area by 2.5 and 3.1 points respectively, amid higher unemployment fears and worsened consumer expectations about the future general economic situation, their households’ financial situation and savings.

Confidence in financial services, which is not included in the ESI, declined in the EU (-3.5) and remained broadly stable in the euro area (+0.1). In the EU the score results from a deterioration in all the components (past business situation, past and expected demand), while in the euro area an improvement in demand expectations outweighed the declines in the other two components of the indicator.

In Bulgaria, the National Statistics Institute  reported an unfavourable business climate in all sectors of the economy – industry, construction, retail trade and services – in August 2012.

Polls among managers from these four sectors showed that the total index fell by 3.3 per cent, compared to July and stood at the level of 2001. In industry, the indicator decreased by 2.8 percentage points, compared to July, the main problem being the declining number of orders from abroad.
Business people said that the uncertain economic environment and the reduced consumption in the country were problems for the development of their businesses.




The Sofia Globe staff

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