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Main Content
What is the Economic Sentiment Indicator?
According to figures recently released by Eurostat, the Economic Sentiment Indicator (ESI) has recorded a small increase in the Eurozone area for July 2010. What does this result indicate to the European business community?
Eurostat, the statistics arm of the European Union, defines the ESI as a composite indicator. The number is composed of five confidence indicators linked to different sectors. Different weights of importance are attached to each sector. The five indicators are: Industrial Confidence Indicator; Services Confidence Indicator; Consumer Confidence Indicator; Construction Confidence Indicator and Retail Trade Confidence Indicator.
The surveys are conducted by the European Commission Directorate General for Economic and Financial Affairs (DG ECFIN). This office reports to the European Commissioner for Economic and Monetary Affairs, currently Olli Rehn from Finland. Its stated aim is to develop policies that lead to economic growth, employment and financial stability in member states, and thereby improve the economic well-being of all EU citizens.
The DG ECFIN sends the surveys to leaders and prominent stakeholders in the five sectors of interest in all EU countries as well as to stakeholders in countries currently applying for membership of the EU. This enables the breaking down of the findings into data for each individual state in addition to the European Union in general and the Eurozone area.
The results for July of this year revealed that the Economic Sentiment Indicator had inched upwards for the EU as a whole – up 1.9 points to 102.2 – as well as in the 16-nation Eurozone – 2.3 points to 101.3. While most EU member states reported an increase in positive sentiment, it was the increase of 4 points in Germany, Europe’s largest economy that fuelled the positive results for the Union as a whole. Other countries to record a significant increase were France, Poland and Italy, while Spain saw a decrease in sentiment of 2.2 points.
While most sectors, in both the Eurozone and the EU, reported an increase in economic sentiment, due to the weighting system employed it was the 2 point increase in industry that accounted for much of the increased positive sentiment in the overall results. Consumer confidence increased by 3 points in the Eurozone and 1 point in the EU, an expected result given the recession is near its end. Much of the increase in consumer confidence and the retail sector in particular can be attributed to a more positive outlook than in recent times in Germany, including a decrease in unemployment fears in the EU’s most populous state.
There are a few caveats to the projected optimism. First, the ESI reported no general increase in positive sentiment related to the construction sector in any country. Second, its surveys do not cover satisfaction ratings pertaining to the financial sector which, according to the European Commission, increased in the Eurozone countries by 3 points but plummeted by 6 points in the EU as a whole.
The Economic Sentiment Indicator fulfils a valuable function as a barometer of Europe’s economic health. Its results give a more rounded picture of the economic landscape in the region as a whole, its member states and even sectors within each member state, than national statistics. It helps the Eurozone and EU countries to plan for the future and acts as an alarm bell to highlight potential problems in the economic sphere, thereby fulfilling its ambition as a positive tool in the pursuit of economic well-being in the European Union.