In July, the Economic Sentiment Indicator (ESI) for the EU and the Eurozone  improved further, registering the fourth consecutive increase in both series since the trough in March. However, in both areas, the level is still far below the long-term average. The ESI increased by 3.9 points in the EU, and by 2.8 points in the Eurozone, to 75.0 and 76.0 respectively.The Business Climate Indicator also improved.

Economic sentiment indicator (s.a.)

EU: July 75.0

Eurozone
 : July 76.0

Recovery of the industrial confidence indicator continued, backed by a further improvement in production expectations and normalisation in the level of stocks. After a more than year-long slide, manufacturers' order books finally showed some improvement. Still, both stocks of finished goods and production expectations remain below their long-term averages; more importantly, industrial activity remains weak, as manifested by the all-time low level of capacity utilisation.

The increase in the ESI resulted from a general improvement in sentiment in all sectors, except construction. Services improved notably in the EU (+3.6 points) and to a lesser extent in the Eurozone  (+2.1). Retail trade recovered in both areas (+2.9 in the EU and +3.5 in the Eurozone), while industry continued its improvement from the trough in March in both the EU (+2.7) and the Eurozone (+2.2). Likewise, sentiment among consumers picked up again by 1.9 in the EU and 2.1 in the Eurozone . Construction, in contrast, remained at the June levels.

The majority of the member countries registered an improvement. Among the largest member countries, the UK (+5.0 points), Spain (+3.9), Italy (+3.5) and Germany (+3.2) recorded significant increases in sentiment, while the rise was marginal in France (+0.3), the Netherlands (+0.2) and Poland (+0.1).

The financial services confidence indicator – not included in the ESI – moved up by 2.0 points in both areas. While managers' assessment of the business situation and demand over the past three months improved markedly, expectations of demand for the next three months decreased substantially compared to the improvement registered last month.

Business Climate

The Business Climate Indicator (BCI) for the Eurozone  increased again in July. However, the level is still very low, even when compared to the previous historical lows of 1993. This suggests that year-on-year industrial production growth will have been negative in June and will remain subdued in July.

The rise in the BCI reflects an overall easing. In particular, both order books and export order books finally showed some signs of improving. Managers' production expectations and their perception of the production trend observed in recent months picked up for the fourth month in a row. Their opinion of stocks of finished goods improved as well, even though the level of stocks was still considered excessive.

The BCI is based on a factor analysis of the Eurozone  aggregate balances (seasonally adjusted) of five of the monthly questions in the industry survey (only employment and selling-price expectations are excluded).