Summary: Euro-zone composite sentiment indicator up slightly in November, in line with expectations; readings up in four of five sectors; up in only one of four largest euro-zone economies; German, French 10-year yields noticeably lower; index implies annual GDP growth rate of 0.1%.
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 93.8 in November, in line with expectations but up modestly from October’s revised reading of 93.5. The average reading since 1985 is just under 100.
German and French 10-year bond yields finished the day noticeably lower. By the close of business, the German 10-year bund yield had lost 7bps to 2.42%, as had the French 10-year OAT yield which finished at 2.99%.
Confidence improved in four of the five sectors of the economy. On a geographical basis, the ESI increased in only one of the euro-zone’s four largest economies, Spain, but deteriorated in Germany, France and Italy.
End-of-quarter ESI readings and annual euro-zone GDP growth rates are highly correlated. This latest reading corresponds to a year-to-November GDP growth rate of 0.2%, up from October’s implied growth rate of 0.1% after revisions.
