Economic sentiment worsens in EU, euro zone in March 2013

In March 2013, the Economic Sentiment Indicator (ESI) decreased in both the euro area and the EU, putting on hold the recovery that had started in November 2012, the European Commission said on March 27. Sentiment declined by 1.1 points in the euro area (to 90.0) and by 0.6 points in the EU (to 91.4).

In the euro area, the ESI’s decline was driven by decreases in all business sectors, while consumer confidence remained broadly stable. Economic sentiment worsened in three out of the five largest euro area economies, i.e. France (-1.7), Germany (-1.6) and Spain (-0.9), while it remained broadly stable in the Netherlands (-0.3) and improved in Italy (+1.4).

The decrease in industry confidence (-1.2) resulted from a much more negative assessment of the current level of overall order books and a slightly worsened assessment of stocks of finished products, while managers’ production expectations remained virtually unchanged. The past production and the current level of export order books, which are not included in the confidence indicator, were also assessed much more unfavourably.

Services confidence interrupted the upward trend observed since October 2012, dropping by 1.4 percentage points. The decrease was the result of a marked worsening in managers’ demand expectations and – to a lesser extent – their assessment of past demand, while their views on the past business situation remained virtually unchanged.

Consumer confidence remained broadly stable (+0.1). Consumers were less pessimistic regarding their unemployment expectations, while slightly more pessimistic regarding their savings expectations over the next 12 months. Consumers’ views on the future general economic situation and the future financial situation of their households were broadly unchanged. Retail trade confidence decreased (-1.5), driven by a worsened assessment of all three components: the present business situation, business expectations and (to a lesser extent) the volume of stocks.

Also, construction confidence decreased somewhat (-0.6), based on a worsened assessment of order books and employment expectations. Financial services confidence (not included in the ESI) fell by 1.1 points. While demand expectations improved considerably, the past business situation and past demand were assessed clearly more negatively.

Employment plans were mildly revised downwards in construction while remaining broadly unchanged in the other business sectors. Selling price expectations decreased in industry, while increasing in construction and retail trade and remaining broadly stable in services.

EU developments

In the wider EU, developments differed only slightly from the euro area. The overall decrease of the ESI was somewhat smaller (-0.6). On a sector-basis the reason for this difference is mainly a continued improvement in EU services confidence (+1.1) and a roughly stable development in construction (+0.3). On a country-basis, the main reason for the difference is improving confidence in the largest non-euro area EU economies UK (+1.1) and Poland (+1.7). EU financial services confidence improved marginally (+0.4).

Contrary to the euro area, employment plans in industry and services worsened, while improving in retail trade. Furthermore, selling price expectations in the EU remained stable in construction and increased in services. Consumers’ price expectations, which remained stable in the euro area, decreased in the wider EU.

In March 2013, the Business Climate Indicator (BCI) for the euro area decreased by 0.14 points to 0.86. The assessment of current order books (overall and export) and past production declined markedly. Also the assessment of the adequacy of stocks of finished products worsened, albeit to a lesser extent. Production expectations remained virtually unchanged.

(Photo: Leah Sawyer)



The Sofia Globe staff

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