Summary: Euro-zone composite sentiment index up slightly in April, below expectations; readings up in three of five sectors; up in three of four largest euro-zone economies; German, French 10-year yields noticeably higher; index implies annual GDP growth rate of 1.2%.
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, although not necessarily as a leading indicator.
The ESI posted a reading of 99.3 in April, below the consensus expectation of 99.9 but slightly higher than March’s revised reading of 99.2. The average reading since 1985 is just under 100.
German and French 10-year bond yields finished the day noticeably higher. By the close of business, the German 10-year bund yield had gained 7bps to 2.45% while the French 10-year OAT yield also finished 7bps higher at 3.04%.
Confidence improved in three of the five sectors of the economy. On a geographical basis, the ESI increased in three of the euro-zone’s four largest economies, Germany, Italy and Spain, but deteriorated noticeably in France.
End-of-quarter ESI readings and annual euro-zone GDP growth rates are highly correlated. This latest reading corresponds to a year-to-April GDP growth rate of 1.2%, unchanged from March’s implied growth rate.
