Sentiment Up In February

Confidence improved in February. The Economic Sentiment Indicator (ESI) rose to 91.1, from 89.5, up for the fourth consecutive month. Note, however, that today’s data are drawn from surveys conducted before recent elections in Italy. The high level of uncertainty could deepen the recession in Italy with negative consequences for the other peers and for the eurozone as a whole

Confidence improved in February, according to the European Commission survey results released this morning. The Economic Sentiment Indicator (ESI) rose to 91.1, from 89.5, up for the fourth consecutive month.

Confidence improved among the largest economies of the area. In Germany the index rose by 2.5 points to 102, above its long-term average (100) for the first time since June 2012. The improvement among the other large economies was less spectacular, with their indices remaining well below their long-term averages.

Confidence rose markedly in the industrial sector (accounting for 40% of the ESI, the largest weight). Manufacturers were much more optimistic regarding future demand (the order index was up by almost 3 points) and their production expectations increased. Lastly the downward inventory adjustment process, which has been weighing on activity over past months and quarters, might have reached its end. The stock of finished goods was indeed stable in February. Better demand prospects boosted services confidence as well, while the improvement among consumers was milder.

Positive signs came also from the employment front. Indices were on the rise in both the manufacturing and services sectors. Even if welcome news, the improvement is unlikely to revert the upward trend of unemployment which will probably continue to increase over the year.

To sum up, today’s data are encouraging and could signal that contraction might ease in Q1. Due to the solid performance of Germany some positive upwards surprise is possible as well. Note, however, that today’s data are drawn from surveys conducted before recent events in Italy, where the general elections, held on Sunday and Monday, did not produce a clear winner able to form a stable government. The high level of uncertainty could deepen the recession in Italy with negative consequences for the other peers and for the eurozone as a whole.

BY Clemente DE LUCIA

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