27 March 2018

March 2018: Economic Sentiment decreases in both the euro area and the EU

In March, the Economic Sentiment Indicator (ESI) decreased markedly in both the euro area (by 1.6 points to 112.6) and the EU (by 1.9 points to 112.5). While this is the third consecutive drop, the indicators remain at elevated levels.

Euro area developments

The deterioration of euro-area sentiment resulted from drops in industry, services and retail trade. Confidence among consumers remained unchanged, while it increased among construction managers. The ESI weakened in all the five largest euro-area economies; significantly so in Germany (-2.4), Italy (-1.8) and Spain (-1.2) and, less so, in the Netherlands (-0.5) and France (-0.4).

The marked decrease in industry confidence (-1.6) resulted from managers' more pessimistic views on all three components, i.e. production expectations, the current level of overall order books, and the stocks of finished products. Managers' assessments of the past production and export order books – which are not included in the confidence indicator – deteriorated, too. Also the marked decline in services confidence (-1.3) was driven by managers' more pessimistic views on all three components: the past business situation, demand expectations and, in particular, past demand. Unchanged consumer confidence (±0.0) reflected broadly stable views on households' future financial situation, while their improved unemployment expectations were offset by more negative assessments of the future general economic situation and consumers' savings expectations. The strong fall in retail trade confidence (-2.9) resulted from more negative views on both the past and expected business situation and, to a lesser extent, on the adequacy of the volume of stocks. Increasing construction confidence (+0.9) was driven by upward revisions of both managers' employment expectations and their assessment of the level of order books. Finally, the fall (-5.4) in financial services confidence (not included in the ESI) resulted from a sharp deterioration in managers' assessments of the past business situation and past demand, while their views on future demand improved.

Employment plans saw an upward revision in services and construction, while they worsened markedly in retail trade and, to a lesser extent, in industry. Selling price expectations increased slightly in retail trade and more importantly in construction, while they decreased in industry and services. Also consumer price expectations dropped in March.

EU developments

The marginally stronger decrease of the headline indicator for the EU (-1.9) was mainly due to the marked deterioration of sentiment in the largest non-euro area EU economies, the UK (-4.2), and Poland (-2.0). In line with the euro area, confidence deteriorated strongly in industry, services, and retail trade, while it increased slightly in the construction sector and remained unchanged among consumers. The fall in EU confidence in the financial services sector was slightly less pronounced than in the euro area.

By contrast to the euro area, EU managers' employment expectations improved in retail trade, while they remained broadly stable in services. Price expectations differed from the euro area mainly in retail trade, where they decreased markedly. 

Full press release

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