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News : EU Economy Last Updated: Jan 27, 2011 - 1:40 PM

Eurozone business climate indicator improved again in January; Economic sentiment indicator unchanged
By Finfacts Team
Jan 27, 2011 - 1:37 PM

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The Eurozone business climate indicator improved again in January while the economic sentiment indicator was unchanged.

Business Climate Indicator further improves in the Eurozone: The Business Climate Indicator (BCI) for the Eurozone increased further in January, albeit at a slower pace. The level of the indicator is approaching historical peak reached in spring 2007, suggesting that the recovery in industry will continue in the coming months.

The rise in the BCI is due to strong increases in export order books, order books and in production trend observed in recent months. By contrast, managers' assessment of production expectations was more cautious. Finally, their appraisal of stocks of finished goods remained unchanged, standing at very low level by historical standards.

Economic sentiment broadly unchanged in both the EU and the Eurozone: In January 2011, the Economic Sentiment Indicator (ESI) remained broadly unchanged, at 105.8 in the EU and 106.5 in the Eurozone. After 7 months of uninterrupted improvement, the indicator stands well above its long term average. A majority of Member States reported either an improvement or a stabilisation in sentiment. Among the seven largest Member States, the Netherlands (+2.5 points) reported the most significant increase, followed by France (+0.8). Italy and Spain remained broadly unchanged. The UK (-1.2), Poland (-1.6) and Germany (-1.7) reported a significant worsening in sentiment. In Germany, France, the Netherlands and the UK, the ESI is above its long-term average.

Sentiment in industry, which increased by 1.1 points in the Eurozone and by 0.6 point in the EU, continued to contribute positively to the overall results. The gain in confidence in this sector reflects sizeable improvements in order books, while managers were more cautious about their production expectations. Stocks of finished goods remained at a very low level by historical standards. In addition, managers in industry were upbeat about their export order books and past production trends. The quarterly manufacturing survey (also released this month) indicates a continuous upwards trend in capacity utilisation. Capacity utilisation now stands at about 80% in both the EU and the Eurozone, approaching its long term average (81%).

Confidence among consumers declined slightly in the EU (-0.5) and remained stable in the Eurozone. In both regions, a slight easing of consumer's unemployment fears was counterbalanced by a worsening of their assessment of the general economic situation and deterioration in their financial situation. Sentiment in construction increased moderately in the Eurozone (+0.5) and remained broadly stable in the EU. The indicator stands at very low levels in both regions. Confidence in services remained flat in both regions. Sentiment in the retail sector weakened substantially in both the EU (-4.2) and the Eurozone (-4.4), after the significant gain registered in December.

Managers in industry signalled a significant increase in their selling price expectations, while households also reported a rise in their assessment of past and future price trends.

Confidence in financial services – not included in the ESI – improved significantly in the Eurozone (+2.5), and remained unchanged in the EU.

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