November 2013: Economic Sentiment improves in the euro area and the EU

In November the Economic Sentiment Indicator (ESI) increased by 0.8 points in the euro area (to 98.5) and by 0.4 points in the EU (to 102.1). While the upward trend observed since May has been preserved, the improvement in confidence has noticeably decelerated over the past two months, mirroring differences in developments across sectors.

Euro area developments

In the euro area, the ESI's increase was driven by improved confidence in services and industry. Confidence weakened among consumers and in construction and remained broadly unchanged in retail trade. Economic sentiment improved in four out of the five largest euro area economies, i.e. Italy (+1.9), Spain (+1.4), the Netherlands (+1.3) and Germany (+0.8), while it deteriorated in France (-0.9).

The increase in industry confidence (+1.1) resulted mainly from an important improvement in managers' assessment of the current level of overall order books. Their production expectations increased as well, though to a lesser degree, while their assessment of the stocks of finished products remained broadly stable. Also managers' assessments of the past production and the current level of export order books, which are not included in the confidence indicator, improved markedly in November. Services confidence registered a strong increase (+2.9), resulting from far better assessments of past demand and the past business situation. Managers' demand expectations improved markedly too. Consumer confidence declined (-0.9), putting a halt to the upward trend observed since December 2012. This was mainly due to a sharp decline registered in France, and reflected worsening expectations about the future general economic situation, unemployment expectations and savings over the next 12 months. By contrast, consumers' views on the future financial situation of their households improved. Retail trade confidence remained broadly unchanged, resulting from an important improvement in managers' business expectations, which was offset by worsening views on the volume of stocks. Retailers' assessment of the present business situation remained virtually unchanged. Confidence in the construction sector decreased ( 0.9), resulting from managers' worsened assessment of both order books and employment expectations. Financial services confidence (not included in the ESI) decreased by 3.7 points. While managers' views of the past business situation became more positive, views of past demand and demand expectations deteriorated.

Employment plans were revised upwards in industry and services, while they worsened in retail trade and construction. Selling price expectations increased in all the business sectors. Offsetting last month's marked decrease, the increase was particularly strong in the construction sector.

EU developments

In the wider EU, the improvement in sentiment was less pronounced (+0.4). On a sector basis, confidence improved at a higher rate in industry and at a lower rate in services. As in the euro area, confidence among consumers decreased. In contrast to the euro area, confidence declined strongly in retail trade and improved somewhat in construction. The main reason for the strong decrease in retail trade was sharply worsening confidence in the largest non-euro area EU economy, the UK. In line with developments in the euro area, the EU financial services confidence indicator decreased (-4.0).

Further in line with the euro area, employment plans in the EU were revised upwards in industry and services, and downwards in retail trade and construction. Selling price expectations in the EU differed compared to the euro area in that they were revised downwards for services and remained broadly unchanged in retail trade. Consumers' price expectations were revised downwards, in line with assessments in the euro area.

Industrial investment survey (conducted in October/November)

According to the bi-annual investment survey carried out in October/November this year, real investment in the manufacturing industry is expected to decrease by 3% in the euro area in 2013. In the previous survey conducted in March/April 2013 managers expected an increase by 1%. For 2014, managers expect a growth of 3%.

In the wider EU, real investment growth in manufacturing is estimated to remain unchanged in 2013, while the March/April 2013 survey pointed to an increase in investment of 3%. Regarding 2014, current expectations point to a 4% increase.

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