Economic Sentiment Down: European Optimism Cools in Hot Summer

Written by | Wednesday, August 1st, 2018

The economic mood in Europe’s single currency area edged lower in July following less-than-expected performance in the retail and industry sectors despite some improvement in mood and services. These results follow the European Commission’s economic monthly barometer. Separately, the Commission’s business climate indicator, which helps identify the phase of the business cycle, went down to 1.29 in July from 1.38 in June. The drop in the overall economic sentiment is attributed to the pessimism surrounding production expectations, the current level of overall order books and stock of finished products.


The survey also pointed to the tensions between the EU and the United States, which resulted in the US imposing tariffs on European steel and aluminum exports in June as well as the threat of more tariffs on European cars. “Managers’ assessment of past production improved while their views on export order books worsened,” the survey said. The sentiment in services, which generate around two thirds of the Eurozone’s gross domestic product, went up while consumer sentiment remained stable. Consumers’ inflation expectations over the next 12 months went up, almost reaching their long-term average. Selling price expectations in industry dropped.


In the meantime, the economic sentiment in Britain – among businesses and consumers alike – remains stuck well below levels before the 2016 Brexit referendum. Britain’s leading consumer confidence indicator compiled by the market research company GfK for the European Commission went down. Joe Staton, GfK’s client strategy director, explained that British consumers appeared to be particularly susceptible to bad news against the backdrop of the uncertainty about Brexit. “In the medium term, and during the uncertainty in the run-up to the UK leaving the European Union in eight months, it is hard to forecast what kind of good news will change the numbers from negative to positive,” Mr. Staton commented.

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