Summary: Euro-zone composite sentiment index down in June; slightly above expectations; readings down in all five sectors; down in all four large economies; German, French 10-year yields substantially lower; index implies GDP growth of 2.4%.
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 104.0 in June, slightly above the consensus expectation of 103.0 but below May’s reading of 105.0. The average reading since 1985 is approximately 100.
German and French 10-year bond yields finished the day substantially lower. By the close of business, both had shed 11bps to 1.51% and 2.06% respectively.
Confidence deteriorated in all five sectors of the economy. On a geographical basis, the ESI declined in all 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-June GDP growth rate of 2.4%, down from May’s implied growth rate of 2.6%.
