Summary: Euro-zone composite sentiment index down in August; just below expectations; readings down in two of five sectors; down in three of four largest euro-zone economies; German, French 10-year yields barely change; index implies annual GDP growth of 0.9%.
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 97.6 in August, just below the consensus expectation of 97.8 as well as July’s revised reading of 98.9. The average reading since 1985 is approximately 100.
German and French 10-year bond yields finished the day barely changed. By the close of business, the German bund yield had slipped 1bp to 1.50% while the French OAT yield finished unchanged at 2.12%.
Confidence deteriorated in just two of the five sectors of the economy. On a geographical basis, the ESI declined in three of the euro-zone’s four largest economies, the exception being Spain.
End-of-quarter ESI readings and annual euro-zone GDP growth rates are highly correlated. This latest reading corresponds to a year-to-August GDP growth rate of 0.9%, down from July’s implied growth rate of 1.2%.
