The European Commission report dated January shows a recovery in the ESI for both the EU and the Euro-zone compared to December but not yet back to the November figure in either case. Industry confidence improved but, again, not by enough to outweigh the falls at the end of 2024. Capacity utilisation rates were marginally higher than in October.
The European Commission draws from a range of surveys to construct confidence indicators for five sectors of the economy and then uses these to calculate up its Economic Sentiment Indicator (ESI) which is converted to an index based on the long-run average.
Confidence improved in the industry, construction and, to a lesser extent, services sectors, was broadly stable for consumers but fell for the retail trade. As noted above, industry confidence improved from the previous month’s report but it is still at a historically weak level and much further below the long-run average than in the other sectors.
Three questions – production over the coming 3 months, the current level of order books and an assessment of stocks of finished products – are used to calculate the measure of industry confidence. The improvement in January* was generated by higher expectations for future output and stocks of finished products, although the former is somewhat at odds with the assessment that the current level of overall order books deteriorated further.
The survey includes two other questions which are not included in the calculation; in line with the earlier question, export order books also worsened but the views about output over the previous 3 months were less pessimistic.
Amongst the largest EU economies, the ESI improved significantly in France (+3.3 points), with Italy (+1.8), Spain (+1.5 points) and Germany (+1.2) seeing smaller but still notable increases; the movement for Poland (-2.0) and, to a lesser extent, the Netherlands (-0.8) was negative.
As noted above, the ESI is calculated against the long-run average, so we can look at the position of the individual countries against their own historical situation – this is the best way to compare between countries. Despite the improvement at a European level, only 9 Member States (down from 11 in December* with the Netherlands, Romania and Slovakia falling below the threshold in January*) have an ESI at or above 100 in this survey – these were Bulgaria, Croatia, Cyprus, Denmark, Greece, Italy (new to the list this month), Lithuania, Portugal and Spain. The EU candidate countries also participate in this survey, with Albania, Montenegro, North Macedonia and Serbia all having an ESI reading above their respective long-run averages and only Turkiye missing out.
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This was one of the surveys, conducted every 3 months, that also includes an update on the level of capacity utilisation (CU) in the manufacturing sector. For the first time since April* 2022, both the EU and the Euro-zone saw CU improve, although only marginally so in the EU. Despite this, the rates remain at their lowest (pandemic excluded) since 2010 at the time of the global financial crisis.
Among the larger EU economies, the CU rate fell in Austria, Germany, Italy, Poland and Spain but increased in Belgium, France, Hungary, the Netherlands and Sweden. However, in all cases, the latest reading (dated Q1-25*) was below the long-run average level (back to 2000) for the respective countries – the largest gap was in Germany, while Italy and Spain were only just under the trend level. As noted last week, the equivalent data for the UK from the CBI survey also showed a fall in CU and the UK has the second largest gap to the long-run average, behind only Germany.
Direct comparisons of levels between countries are not valid as they have different “natural” rates so the best way of making comparisons is to relate it to the respective long-run average.
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* Note that although dated January 2025, with the data collection period running from 1st to 23rd of that month, the trends really refer to December 2024 and the 3-month periods ending in and following after this month; this corresponds to the quarters of the calendar year with Q4-24 in the past and Q1-25 in the future. Similarly, the quarterly data, which is labelled as “Q1-25” really refers to the position at the end of Q4-24.
You can download the EC report and statistical annex from their website at https://economy-finance.ec.europa.eu/economic-forecast-and-surveys/business-and-consumer-surveys/download-business-and-consumer-survey-data/press-releases_en (open the 2025 box) or you can request it from MTA.