Sentiment Down In October

Confidence continued to deteriorate in the Eurozone, albeit at a slower pace, according to the European Commission results. The Economic Sentiment Indicator, a good leading indicator of GDP growth, came in at 86.2 in October, losing 0.7 point with respect to the previous month. Since the beginning of the year, the index has been decreasing in every month with the only exception of February.

Survey details showed that confidence indicators decreased further in the manufacturing, services and construction sectors, while sentiment rose somewhat among consumers and in the retail sector. Manufacturers were particularly upset by the poor prospects of demand. The order books index plunged to 34.9, down by more than 4 points with respect to September. Since January the index has lost almost 20 points. Against this backdrops business are scaling back production and investment decisions. Plant capacity utilisation in the manufacturing industry was 76.6% at the beginning of Q4, almost 3 pp below the rate recorded in the same period of 2011. In this environment manufacturers do not think at all to increase their labour force. The employment expectation index continued to lose ground in October.

All in all, survey data were not encouraging for the start of Q4. In particular, confidence deterioration in the industrial sector suggests that the recent industrial production rebound might be short-lived and could be reverted in the last quarter of the year. The easing of financial and monetary conditions following the ECB announcement at the beginning of September has not yet produced positive effects on businesses, who are still suffering from extremely low levels of demand. Hopefully, they will start to produce effects over the coming months.

Clemente DE LUCIA

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