Summary: Euro-zone composite sentiment index up in November, slightly above expectations; readings up in two of five sectors; up in two of four largest euro-zone economies; German, French 10-year yields lower; index implies annual GDP growth rate of zero.
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 93.7 in November, slightly above the consensus expectation of 93.0 as well as October’s revised reading of 92.7. The average reading since 1985 is approximately 100.
German and French 10-year bond yields finished the day lower. By the close of business, the German 10-year bund yield had lost 5bps to 1.93% while the French 10-year OAT yield had shed 7bps to 2.55%.
Confidence improved in two of the five sectors of the economy, deteriorated in one and were broadly unchanged in another two. On a geographical basis, the ESI increased in Germany and Italy but decreased in France and Spain.
End-of-quarter ESI readings and annual euro-zone GDP growth rates are highly correlated. This latest reading corresponds to a year-to-November GDP growth rate of zero, up from October’s implied growth rate of -0.2%.
