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ECONOMIC SENTIMENT : INDICATORS FOR EU AND EUROZONE DOWN IN AUGUST.

While economic growth in the EU is expected to continue gathering pace, until at least the end of 2006 before slowing down over the firsthalf of 2007, the principal economic indicator published by the European Commission on 31 August shows a decline.

After an almost continuous rise over the last 14 months, the Economic Sentiment Indicator (ESI) fell by more than a point in both the EU and the eurozone (to 108.4 for the EU and 106.7 for the eurozone). This indicator is designed to reflect general economicactivity in the EU, combining assessments and expectations stemming from business and consumer surveys.

According to the Commission, the decline in the sentiment indicator for the EU can be explained by developments in the industry sector,where the confidence indicator fell by two points. It is nevertheless worth pointing out that, in spite of this drop, the sentiment indicator remains positive and significantly above its long-term average. Meanwhile, managers' assessments of order books and stocks of finished products have not changed much compared to last month.

The fall in confidence in the industrial sector is mainly due to production expectations turning less positive.

At country level, the United Kingdom reported the biggest fall in the industrial confidence indicator (-5 points), followed by Italy (-3 points) and Germany (-1 point).

By contrast, the service confidence indicator remained broadly stable in August, showing a small improvement in the EU and unchanged confidence in the eurozone. Managers in theservices sector confirmed their assessment of the expected evolution of demand. Among the larger EU member states, Spain and the UK saw their confidence indicators strengtheby 11 and 2 points, respectively. Finally, the construction confidence indicator remained unchanged in the EU whilst falling slightly by one point in the eurozone. The stability of confidence indicators was, however, a result of contrasting developments in the underlying components.Construction managers became more negative in their assessment of order books, but expressed more positive expectations with regard to the employment situation.

At the country level, builders in Germany (+1 point) and the UK (+2 points) reported the biggestimprovements in sentiment, whilst their Spanish counterparts havebecome drastically more pessimistic(-12 points).

Comparative tables are available at http://ec.europa.eu/economy_finance/indicators/businessclimate_en.htm

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Publication:European Report
Geographic Code:4E
Date:Sep 1, 2006
Words:376
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