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Economic sentiment, business climate improve in euro area

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Economic sentiment, business climate improve in euro area

The euro area’s Economic Sentiment Index increased 0.8 points to 98.5 in November, driven almost exclusively by growing confidence in services and industry. Although confidence has been improving since May, the ESI took a noticeable hit in August and September, due to persistent weakness in the euro area economy.

The Economic Sentiment Indicator tracks confidence in economic activity across five segments: industry, services, construction, retail trade and consumers.

Confidence improved in four of the euro area’s five largest economies, including Italy (+1.9), Spain (1+1.3), Netherlands (+1.3) and Germany (+0.8). Economic sentiment fell in France (-0.9). The French economy contracted 0.1 percent in the third quarter and was up a mere 0.2 percent from year-ago levels. Italy’s situation was much worse, after GDP contracted 1.9 percent from year-ago levels.

Employers in industry and services increased their outlook on business expectations, which boosted their outlook on hiring. Hiring plans worsened in retail trade and construction, where employers expressed declining optimism about the current situation.

The euro area’s business climate improved for a seventh consecutive month, according to a separate report from the European Commission. The Business Climate Indicator rose 0.26 points to 0.18, registering the first positive reading since March 2012.

Consumer confidence declined in November, putting an end to an upward trend dating back to December 2012. Lagging consumer confidence could be a cause for greater concern leading up to the holiday season. Economists use consumer confidence as a gauge for willingness to spend, which has broader implications on the overall economy. Euro region consumers are struggling with record high unemployment and economic stagnation, trends that may force the European Central Bank to pursue drastic policy measures in the short-term. The lending environment remains ultra-accommodative after the ECB slashed interest rates in half earlier this month.

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