Summary: Euro-zone composite sentiment indicator down in December, below expectations; German, French 10-year yields rise; readings down in three of five sectors; down in three of four largest euro-zone economies; 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.
According to the latest survey taken by the European Commission, confidence has deteriorated on average across the various sectors of the euro-zone economy in December. The ESI posted a reading of 93.7, below expectations and November’s revised reading of 95.6. The average reading since 1985 is just under 100.
Long-term German and French 10-year bond yields moved noticeably lower on the day. By the close of business, the German 10-year yield had gained 3bps to 2.52% while the French 10-year yield finished 6bps higher at 3.36%.
Confidence deteriorated in three of the five sectors of the euro-zone economy. On a geographical basis, the ESI decreased in three of four of the euro-zone’s 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-December GDP growth rate of 0.2%, down from November’s implied growth rate of 0.6%.
