Economic sentiment dipped again in the EU and
Eurozone in July while the Business Climate Indicator (BCI) for the Eurozone
declined by 0.32 points to -1.27. The fall was driven by deteriorations in all
Economic sentiment declines in the EU and the Eurozone: In July the Economic
Sentiment Indicator (ESI)
fell in the EU by 1.4 points, to 89.0, and in the Eurozone by 2.0 points,
to 87.9. The decline resulted from lower confidence in all sectors entering the
calculation of the ESI. However, a loss of confidence in the services sector was
the main driver of the decline in the EU, while the Eurozone saw the biggest
declines in industry and among consumers.
While three quarters of the member states witnessed a drop in economic
sentiment, this was only the case for three out of the seven largest Member States: The ESI registered sharp falls in
Germany (-3.7) and France (-2.3) and also decreased in Spain (-1.4). However, the ESI continued last
month's recovery in the UK (+1.7) and Italy (+1.3) and rose slightly in the Netherlands (+0.6). The figure for
Poland is broadly unchanged (-0.1).
The European Commission said that confidence in industry continued the downward trend reported since March.
While relatively moderate in the EU (-0.7), July's decrease in the Eurozone was sharp (-2.2). In both regions, the
decline can be attributed to decreasing production expectations, as well as a more negative assessment of the
current level of overall order books and increasing stocks of finished products. In line with these results,
managers' assessment of their companies' past production and current level of export order books also
deteriorated. Confidence in services declined in the EU and Eurozone for the fourth consecutive month, the fall being
more significant in the EU (-3.1) than in the Eurozone (-1.1). The evaluation of the past business situation and
past demand, as well as the demand expectations, deteriorated in the EU. Figures for the Eurozone, however,
report a stable assessment of the past business situation. After the sharp increases of June, July's
confidence in retail trade eased slightly in both the EU (-0.3) and the Eurozone (-0.6). While the present business situation
and the development of the current volume of stocks were viewed more positively, the expected business
situation deteriorated significantly.
Also in the construction sector, confidence
dropped only slightly in the EU
(-0.5) and the Eurozone (-0.3). In the EU, the fall is attributable to a more negative assessment of both order
books and employment expectations, while in the Eurozone only order books contributed to the decline.
In both regions, employment plans were further revised downwards for industry
and retail trade. They were revised upwards in the services sector and remained virtually unchanged in
construction. Selling price expectations varied across sectors, with construction showing clear and industry
slight downward expectations, counterbalanced by expected price increases in services and, albeit only in the
Eurozone, also in retail trade. Consumer confidence weakened in both the EU and the Eurozone by 0.5 and 1.7
points respectively, amid higher unemployment fears, as well as worsened expectations about the future general
economic situation and savings.
While in case of the Eurozone the negative outlook is also reflected in
consumers' assessment of their households' financial situation over the next 12 months, this was not the case
for the EU as a whole. In contrast to all other sectors, confidence in financial services, which is not
included in the ESI, increased in both the EU (+0.9) and the Eurozone (+2.6). The scores are driven by markedly
improved demand expectations and a better assessment of the past business
situation, which clearly outweigh the more negative assessment of past demand.
In the quarterly survey of the manufacturing industry, carried out in July,
industrial managers in the EU and the Eurozone reported no significant changes in the number of months of production
assured by orders on hand. However, the assessment of new orders and export volume expectations decreased
sharply, to levels well below the respective averages reported since 1990. Also, managers' appraisal of their
competitive position on foreign markets outside the EU fell short of previous results, but remained close to its
long-term average. The balance of managers reporting more than sufficient, rather than insufficient, production
capacity increased. Accordingly, capacity utilisation decreased markedly, to 78.2% in the EU and 77.8% in the
Eurozone. Strong heterogeneity in capacity utilisation persists among Member States. In Germany, capacity
utilisation fell below its long-term average, to 82.6%.
Business Climate Indicator continues its decrease in July: In July
2012, the Business Climate Indicator (BCI) for the Eurozone decreased by 0.32
points to -1.27. The decline was driven by deteriorations in all five components. The
steepest decreases occurred in managers' assessment of past production and export order books.
Production expectations and the assessment of overall order books and the adequacy of
stocks of finished products also deteriorated.
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