The October report from the European Commission shows a reduction in the ESI for both the EU and the Euro-zone and it is now at its lowest level since February and July respectively. This decline was entirely driven by a sharp and broadly based fall in industry confidence compared to the previous month.
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.
The sharp fall in industry confidence was large enough to outweigh modest gains in confidence for the construction and retail trade sectors, as well as for consumers, while service sector confidence was broadly unchanged from September*.
Three questions – production over the coming 3 months, the current level of order books and an assessment of stocks of finished products – are combined in calculating industry confidence and this decline came because all of them deteriorated sharply. There are two other questions which are not included in the calculation and both of these – output over the previous 3 months and export order books – also worsened. Overall, a bad month for the industry sector.
Amongst the largest EU economies, there was a very sharp fall in the ESI in Spain (-4.8 points) and France (-4.7) and smaller but still significant declines in Poland (-3.6) and the Netherlands (-2.3); there was only a small reduction in Italy (-0.5) and Germany saw a modest increase (+0.8).
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 – this is the best way to compare between countries. In the latest report, 10 Member States (down from 13 in September* with Italy, Luxembourg, the Netherlands and Poland falling below the threshold while Malta has joined the list) have an ESI at or above 100 in this survey – these ten were Bulgaria, Croatia, Cyprus, Denmark, Greece, Lithuania, Malta, Portugal, Romania and Spain (the latter despite its sharp fall). The EU candidate countries also participate in this survey, with Albania, Montenegro, North Macedonia and Serbia all having an ESI reading above their respective long-run averages and only Turkiye missing out.
This was one of the quarterly surveys that also includes an update on the level of capacity utilisation (CU) in the manufacturing sector. For the EU and the Euro-zone there was another decline which extends the negative run since the most recent peak to 10 quarters (back to Q2-2022), although the Euro-zone had a pause around the turn of 2022/23; as a result, the CU rate fell further below its long-run average and, with the exception of the pandemic period in 2020, it is at its lowest level since the middle of 2010. 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 is also lower; Spain and Italy (although the latter only just so) are above their long-run level.
* Note that although dated October, with the data collection period running from 1st to 23rd of that month, the trends really refer to September and the 3-month periods ending in and following after this month which corresponds to the quarters of the calendar year with Q3 in the past and Q4 in the future. Similarly, the quarterly data, which is labelled as “Q4-24” really refers to the position at the end of Q3-24.
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.