Summary: Euro-zone composite sentiment indicator down in June, slightly below expectations; readings down in four of five sectors; down in three of four largest euro-zone economies; German, French 10-year yields considerably higher after US GDP revisions; 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 95.3 in June, slightly below the consensus expectation of 95.7 as well as May’s revised reading of 96.4. The average reading since 1985 is just under 100.
German and French 10-year bond yields finished the day considerably higher, pushed up by higher US Treasury yields after US GDP figures were revised. By the close of business, the German 10-year bund yield had gained 10bps to 2.41% while the French 10-year OAT yield finished 11bps higher at 2.95%.
Confidence deteriorated in four of the five sectors of the economy, consumer confidence the exception. On a geographical basis, the ESI decreased in three of the euro-zone’s four largest economies, Germany, Italy and Spain, but improved again 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-June GDP growth rate of 0.2%, down from May’s implied growth rate of 0.5%.
