Summary: Euro-zone composite sentiment indicator down a touch in September, above expected figure; readings down in four of five sectors; down in two of four largest euro-zone economies; German, French 10-year yields considerably higher; index implies annual GDP growth rate of -0.2%.
The European Commission’s Economic Sentiment Indicator (ESI) is a composite index comprising five differently weighted sectoral confidence indicators. It is heavily weighted towards confidence surveys from the business sector, with the consumer confidence sub-index only accounting for 20% of the ESI. However, it has a good relationship with euro-zone GDP growth rates, although not necessarily as a leading indicator.
The ESI posted a reading of 93.3 in September, above the generally-expected figure of 92.4 but down a touch from August’s revised reading of 93.6. The average reading since 1985 is just under 100.
German and French 10-year bond yields finished the day considerably higher despite the less-than-stellar figures. By the close of business, German and French 10-year bond yields had both gained 7bps to 2.93% and 3.49% respectively.
Confidence deteriorated in four of the five sectors of the economy. On a geographical basis, the ESI decreased in two of the euro-zone’s four largest economies, Spain and Italy, but improved in Germany and France.
End-of-quarter ESI readings and annual euro-zone GDP growth rates are highly correlated. This latest reading corresponds to a year-to-September GDP growth rate of -0.2%, unchanged from August’s implied growth rate.
