Summary: Euro-zone composite sentiment indicator down a little in October, slightly above expected figure; readings down in three of five sectors; down in two of four largest euro-zone economies; German, French 10-year yields either modestly higher or flat; 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 October, slightly above the generally-expected figure of 93.0 but down a little from September’s revised reading of 93.4. The average reading since 1985 is just under 100.
German and French 10-year bond yields finished the day either a little higher or flat. By the close of business, the German 10-year bund yield had added 2bps to 2.83% while the French 10-year OAT yield finished unchanged at 3.44%.
Confidence deteriorated in three of the five sectors of the economy. On a geographical basis, the ESI decreased in two of the euro-zone’s four largest economies, France and Italy, but improved in Germany and Spain.
End-of-quarter ESI readings and annual euro-zone GDP growth rates are highly correlated. This latest reading corresponds to a year-to-October GDP growth rate of -0.2%, unchanged from September’s implied growth rate.
