The Economic Sentiment Indicator (ESI) for the EU and the Eurozone fell again in January, but less sharply than in the last three months of 2008. The Business Climate Indicator (BCI) for the Eurozone fell again in January, though marginally so, and reached its lowest since January 1985.

Economic sentiment weakens further in both the EU and the Eurozone

In January, the Economic Sentiment Indicator (ESI) for the EU and the Eurozone declined again, but less sharply than in the last three months of 2008. It fell by 3.3 points in the EU and by 1.5 points in the Eurozone, to 64.9 and 68.9, respectively. The indicators for both regions stand at their lowest levels since the current series was launched in January 1985.

Economic sentiment indicator (s.a.)
EU: January 64.9

Eurozone: January 68.9

The fall in the ESI for both the EU and the Eurozone is attributed to a general decline in confidence in all sectors, except for the retail trade sector which remained unchanged. Services (-4.9 points in the EU and -4.8 in the Eurozone) and construction (-4.0 and -3.3, respectively) declined the most among all the five sectors. The industrial confidence indicator dropped by 1.8 points in the EU and by 0.4 in the Eurozone, while consumer sentiment dropped by 2.3 points in the EU and by 0.8 in the Eurozone.

Overall, most Member States recorded a fall in confidence. The drop in economic sentiment in the Eurozone reflects worsening confidence in Germany (-3.1 points), and to a lesser extent in Italy (-1.0) and France (-0.9), while that of Spain increased somewhat (+2.5). Outside the Eurozone, confidence fell significantly in Poland (-8.6), the UK (-7.4) and several other countries, thus explaining the larger drop in the EU indicator compared with that for the Eurozone.

The financial services confidence indicator for the Eurozone - not included in the ESI - fell significantly to -22 (a drop of 13 points), after it had recovered somewhat in December 2008. The EU indicator also dropped by 5 points to -20. Managers' assessment of their business situation worsened further and they also expect the demand for their services to deteriorate substantially in the coming months.

According to the quarterly manufacturing survey carried out in January 2008, the capacity utilisation rate has fallen substantially since the last survey in October and now stands at 74.9% in the EU and 75.2 % in the Eurozone - the lowest since 1990. This is broadly in line with the slump reported for new orders in the past three months for both regions. Looking forward, managers expect their export orders to decrease considerably in the next three months.

Business Climate Indicator reaches a new all-time low in January

The Business Climate Indicator (BCI) for the Eurozone fell again in January, though marginally so, and reached its lowest since January 1985. The latest BCI confirms the expectation that the outcome of the year-on-year industrial production growth for December will also be markedly negative, after the sharp fall recorded in November 2008. The indicator suggests that annual industrial production growth will be clearly negative in January 2009.

The drop in the BCI reflects a general deterioration in its underlying components; however, the downward development in the components was less dramatic than in the past three months. Managers report a deteriorating production trend and worsening order books. Looking ahead, they expect production to decline even further. On the positive side, the stocks of finished goods component improved somewhat in January.