August euro-zone ESI down slightly

Summary: Euro-zone composite sentiment index declines in August; slightly below expectations; readings down in three of five economic sectors, down in all four major economies; sovereign bond yields lower on day; index implies 5%+ GDP growth.

The European Commission’s Economic Sentiment Indicator (ESI) is a composite index comprising five differently-weighted sectoral confidence indicators.  It is heavily weighted towards confidence surveys from the business sector, with the consumer confidence sub-index only accounting for 20% of the ESI. However, it has a good relationship with euro-zone GDP, although not as a leading indicator.


The ESI posted a reading of 117.5 in August, slightly below the market’s expected figure of 118.0 and July’s reading of 119.0. The average reading since 1985 has been just under 100.


Confidence deteriorated across three of the five sectors. The services, industry and consumer sub-indices all deteriorated while the retail trade and construction sub-indices both improved. On a geographical basis, the ESI declined in Germany, France, Italy and Spain.

German and French 10-year bond yields finished the day modestly lower. By the close of business, the German 10-year bond yield had shed 2bps to -0.44% while the French 10-year yield finished 1bp lower at -0.09%.

End-of-quarter ESI readings and annual euro-zone GDP growth rates are highly correlated. This latest reading corresponds to a year-to-August growth rate of 5.3%, down from July’s revised figure of 5.7%.


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