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Tuesday, May 5, 2009

European Economic Sentiment Indicator Recovers Slightly

In April, the Economic Sentiment Indicator (ESI) for the EU and the Eurozone picked up for the first time since May 2007 (excluding a small blip in March 2008 for the EU). The Business Climate Indicator (BCI) for the Eurozone increased in April.

The rebound in the ESI resulted from a clear improvement in sentiment in industry and among consumers, which increased by 3.5 points in the EU, and by 2.5 points in the Eurozone, to 63.9 and 67.2 respectively.

ESI in both regions rose by the same amount (3 points), and a smaller increase in services (+1 point in both regions). Retail trade sentiment grew by 2 points in the EU, but fell by 2 points in the Eurozone.

Construction, in contrast, declined in both areas – by 1 point in the EU and by 2 points in the Eurozone. The majority of Member States registered an improvement. Among the largest Member States, Italy (+6.4 points), the UK (+5.1), the Netherlands (+4.2), Spain (+4.1), and Poland (+3.8) witnessed significant increases in sentiment, while the rise was less sizeable in France (+1.0) and Germany (+0.8).

The financial services confidence indicator – not included in the ESI – improved markedly in both areas, by 11 points in the EU and by 16 points in the Eurozone. Compared to March, managers' assessment of business situation and demand for their services augmented significantly. Managers' expectations of demand improved strongly and became positive for the fist time since October 2008.

The quarterly manufacturing survey, carried out in April 2009, indicates a further fall in capacity utilisation since the last survey in January: it now stands at 71.0% in the EU and 70.5 % in the Eurozone – the lowest since 1990.

However, new orders received in the past three months and expectations about export orders in the next three months improved marginally from the low recorded in January.

According to the six-monthly industrial investment survey which was carried out in March and April of this year, managers in most Member States expect a sharp decrease in their investment volumes in 2009 compared to 2008. More specifically, in 2009 real investment is expected to drop by 18% in the EU and by 20% in the Eurozone. This represents a significant downward revision of expectations from the -5% reported in both regions in the previous investment survey (conducted in autumn 2008).

The Business Climate Indicator (BCI) for the Eurozone increased in April. This is the first improvement since May 2008. The indicator nevertheless remained at a very low level, pointing to another negative outcome for year-on-year industrial production growth in March, after the record fall registered in February. Given the current levels, it also suggests that annual industrial production growth will remain clearly subdued in April.

The rise in the BCI reflects an improving situation in most of its underlying components. Managers' production expectations picked up clearly in April, while the production trend observed in recent months improved only slightly. Their assessment of current overall order books and stocks of finished goods recovered marginally from last month's level, though export order books continued to worsen.

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