Eurozone economic sentiment hits 15-month high

Economic sentiment in the Eurozone rose to 92.5 in July from 91.3 the month before. This is the third consecutive month of increases and puts the index at a 15-month high. However, forecasts of 92.6 were just slightly too optimistic (release).

Growth was driven by confidence boosts in industry (up 0.6 to -10.6) services (beating forecasts to come in at -7.8 from -9.5, versus expectations of -9.0) and retail trade (up 0.9 to -13.7). Construction was the only area to see growing contraction, falling to -32.6 from -31.5.

Economic sentiment improved in four of the five largest euro economies - Italy was up 2.9, Spain and France up 1.2 and Germany up 0.7, while it fell by 2.0 in the Netherlands.

Jennifer McKeown, senior European economist at Capital Economics, says improvements in the economic sentiment index looks consistent with the moderating GDP contraction from -1.1 per cent in the first quarter to around -0.5 per cent.

This month’s improvement was driven by rises in the consumer, service sector and industrial indices. But while the former two are roughly consistent with stagnant activity, the latter points to further falls in industrial output.

The improvement was broadly based by country, but the German index remains far above the others and is one of the only ones pointing to positive annual GDP growth.

In all, the survey adds to a run of relatively positive news. But, for now at least, the economy remains very weak and with money and credit growth still failing to pick up, the ECB should provide more monetary policy support before long.