Summary: Euro-zone composite sentiment indicator down in August, slightly below expectations; readings down in all five sectors; down in three of four largest euro-zone economies; German, French 10-year yields moderately higher; 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 August, slightly below the consensus expectation of 95.5 and down from July’s reading of 94.5. The average reading since 1985 is just under 100.
German and French 10-year bond yields finished the day moderately higher. By the close of business, German and French 10-year bond yields had both gained 4bps to 2.56% and 3.07% respectively.
Confidence deteriorated in all five sectors of the economy. On a geographical basis, the ESI decreased in three of the euro-zone’s four largest economies, Germany, France and Italy, but improved in Spain.
End-of-quarter ESI readings and annual euro-zone GDP growth rates are highly correlated. This latest reading corresponds to a year-to-August GDP growth rate of -0.2%, down from July’s implied growth rate of 0.1%.
