Summary: Euro-zone composite sentiment index falls from 114.0 to 108.5 in March; below expectations; readings down all sectors with the exception of services; down in all four of largest economies; sovereign bond yields modestly higher on day; index implies GDP growth of 3.3%.
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, although not as a leading indicator.
The ESI posted a reading of 108.5 in March, below the market’s expected figure of 110.0 as well as February’s reading of 114.0. The average reading since 1985 has been a touch over 100 and the latest reading is still substantially above it.
German and French 10-year bond yields finished the day modestly higher. By the close of business, the German bund yield had crept up 1bp to 0.65% the French 10-year OAT yield had added 2bps to 1.08%.
Confidence deteriorated in all sectors with the exception of services. On a geographical basis, the ESI fell in all of the euro-zone’s four largest economies.
End-of-quarter ESI readings and annual euro-zone GDP growth rates are highly correlated. This latest reading corresponds to a year-to-March GDP growth rate of 3.3%, down from February’s 4.6%.
