In the July report, the ESI for both the EU and the Euro-zone was broadly stable, with a tiny increase for the EU and an equivalent reduction for the Euro-zone although these changes are both within the margin of error for the measure; it remains below the long-run average for both areas. The measure of industry confidence was also broadly unchanged from the June reading.
The European Commission (EC) draws from a range of surveys to construct confidence indicators for five sectors of the economy and then uses these to calculate up its Economic Sentiment Indicator (ESI) which is converted to an index based on the long-run average.
In the EU, industrial confidence was stable while there were modest improvements in confidence for consumers and the construction sector; in the opposite direction both the retail trade and services sectors saw a significant decline. Amongst the largest EU economies, the ESI improved strongly in Spain (+1.7 points) and to a lesser degree in Italy (+0.4); it was broadly stable in Germany (+0.2) and the Netherlands (-0.2) but fell significantly France (-2.2) and Poland (-1.8).
As noted above, the ESI is calculated against the long-run average, so we can look at the position of the individual countries against their own historical situation which is the best way to compare between countries. In the latest report, 10 Member States (down from 11 in June* with Hungary and Poland falling below the threshold while Italy joined the list) have an ESI at or above 100 in this survey – these ten were Bulgaria, Croatia, Cyprus, Denmark, Greece, Italy, Portugal, Romania, Slovakia and Spain. The EU candidate countries also participate in this survey, with Albania, Montenegro, North Macedonia and Serbia also having an ESI reading above their respective long-run averages.
Three questions are combined in calculating industry confidence; the latest result is a combination of an improvement in expectations for production over the coming 3 months off-set by a decrease in the current level of order books (although these seem to be inconsistent results), while the assessment of stocks of finished products was stable. There are two other questions which are not included in the calculation; there was a small improvement in output over the previous 3 months but the view of export order books plummeted.
As a quarterly survey, this also brings with us new data for capacity utilisation (CU); this fell further below its long-run average for both the EU and the Euro-zone and, other than during the pandemic, it is now at its lowest level since the end of 2013. Direct comparisons of levels between countries are not valid as they have different “natural” rates so the best way of making comparisons is to relate it to the respective long-run average. In the latest results, among the major EU economies, Germany is significantly below their long-run average and France and the UK are also under the long-run level. Spain, and to a lesser extent Italy are above their long-run level.
* Note that although dated July, with the data collection period running from 1st to 23rd of that month, the trends really refer to June and the 3-month periods ending in and following after this month which corresponds to the quarters of the calendar year with Q2 in the past and Q3 in the future. Similarly, the quarterly data, which is labelled as “Q3-24” really refers to the position at the end of Q2-24.
You can download the EC report and statistical annex from their website at https://economy-finance.ec.europa.eu/economic-forecast-and-surveys/business-and-consumer-surveys/download-business-and-consumer-survey-data/press-releases_en (open the 2024 box) or you can request it from MTA.