Summary: Euro-zone composite sentiment index up from 104.9 to 105.0 in May; touch above expectations; readings down in two of five sectors, other three unchanged; up in all four largest euro-zone economies; sovereign bond yields substantially higher; index implies GDP growth of 2.6%.
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 105.0 in May, a touch above the consensus expectation of 104.9 and April’s revised reading of 104.9. The average reading since 1985 is approximately 100.
German and French 10-year bond yields finished the day substantially higher after German inflation figures came in stronger than expected. By the close of business, German and French 10-year yields had both gained 7bps to 1.05% and 1.56% respectively.
Confidence deteriorated in two of the five sectors while the other three remained broadly unchanged. On a geographical basis, the ESI rose 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-May GDP growth rate of 2.6%, unchanged from April’s implied growth rate.
