Euro-zone sentiment index back above average

30 March 2021

Summary: Euro-zone composite sentiment index up; above expectations; all industry sectors improve; readings from major euro-zone economies all up; sovereign bond yields up moderately; index implies GDP growth to end of March.

 

The European Commission’s Economic Sentiment Indicator (ESI) is a composite index comprised of 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 produced a reading of 101.0 in March, above the market’s expected figure of 95.0 and considerably more than February’s reading of 93.4. The average reading since 1985 has been just under 100.

Confidence improved across all five of the industry, retail trade, construction, services and consumer sub-indices. On a geographical basis, the ESI rose in all major economies, with Germany recording a record monthly increase.

German and French 10-year bond yields finished the day moderately higher. By the close of business, the German bund yield had gained 3bps to -0.29% and the French OAT yield had added 4bps to -0.03%.

End-of-quarter ESI and annual euro-zone GDP growth rates are highly correlated. This latest reading corresponds to a year-to-March growth rate of 1.6%, up from February’s comparable reading of 0.1%.