World Economy

Eurozone ESI at 10-Year High

Eurozone ESI at 10-Year HighEurozone ESI at 10-Year High

Confidence in the eurozone’s economy rose in August to levels not seen since before the financial crisis, according to the latest sentiment surveys of businesses, economists and consumers, conducted by the European Commission.

Economic sentiment index rose to its highest level in 10 years, while the business climate also improved. Consumer confidence, which edged up on the previous month, remained a little subdued, however, reported.

The headline economic sentiment index for the eurozone rose to 111.9 in August, from an upwardly revised 111.3 in July as improved confidence in industry and services offset decreases in retail trade sentiment.

Economic sentiment improved in three of the five largest eurozone countries–Italy, France and Spain–but eased in Germany and the Netherlands.

Among the reasons for the 0.6-point fall in Germany appeared to be related to the strength of the euro and its impact on export costs.

While industry confidence rose by 0.6 points, much of the downward pressure on the index came from business managers’ appraisals of export order books, which worsened.

Although there was no information on the impact of the stronger euro, the balance of Germany’s export-led economy has shown signs of tilting back towards higher levels of domestic demand.

The stronger euro increases the costs of exports to countries with weaker exchange rates.

As far as monetary policy was concerned, the survey data offered few clues. Inflation expectations failed to show any pressures building, with the inflation expectations index dipping to 11.6 in August, from 11.7 in the prior month.

“The difficult situation of healthy growth and weak inflation continues to trouble the European Central Bank ahead of next week’s governing council meeting,” said ING’s senior eurozone economist Bert Colijn.

“The August survey indicators all point to some modest improvements compared to July, but the main message is that the economy maintains a healthy cruising speed. Economic growth in the eurozone seems to be stable at around 2% year-on-year for the moment, well above trend growth.

“The ESI showed improvements in both services and industry, showing the current economic strength is widespread. Production and employment expectations both improved in the industry sector, but a drop off in employment expectations in services shows there could be some leveling off regarding job market recovery in the months ahead.”

Meanwhile, there was little positive reaction on the currency markets. The euro dipped 0.2% against the dollar to $1.194 and was 0.2% weaker versus the pound at €1.081.

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