Euro-zone ESI up; September GDP growth likely to be strong

Summary: Euro-zone composite sentiment index rises from 117.6 to 117.8 in September; slightly above expectations; readings up in three of five economic sectors, up in Germany, Span, down in France, Italy; sovereign bond yields slightly lower on day; index implies 5%+ GDP growth to September 2021.

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 117.8 in September, slightly above the market’s expected figure of 117.0 and August’s revised reading of 117.6. The average reading since 1985 has been just under 100.

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

German and French 10-year bond yields finished the day slightly lower. By the close of business, the German 10-year bond yield had slipped 1bp to -0.21% while the French 10-year yield finished 2bps lower at 0.14%.

End-of-quarter ESI readings and annual euro-zone GDP growth rates are highly correlated. This latest reading corresponds to a year-to-September GDP growth rate of 5.4%, which is unchanged from July’s revised figure. Such a growth rate implies a 4.3% increase in the September quarter.


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