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Economy in Brief

European Surveys of Business and Consumer Confidence Show Increases in Optimism but Level Remains Subdued
by Louise Curley May 22, 2007

Among the Euro area analysts and institutional investors surveyed by the Center for European Economic Research (ZEW) in Manheim Germany, the excess of those who feel good about the current situation over those who feel bad rose to an all time high of 81.8% in May, an increase of 11.9 percentage points over April, and 63.5 points above May 2006. These same financial types became more optimistic regarding the economic outlook six months ahead. The optimists exceeded the pessimists by 24.0% in May. This is 11.6 percentage points higher than in April, but 26.0 percentage points below May of 2006. In the eight plus years that the data have been available, the level of optimism seems cautious as can be seen in the first chart.

A similar pattern emerges in the ZEW results for Germany alone, as shown in the second chart. An excess of 88% (again an all time high) of the respondents found current conditions good over those who found them bad. This was 11.1 percentage points above April and 79.3 points above May 2006. The excess of optimists over pessimists regarding the economic outlook rose to 24.0% in May, 7.5 percentage points above April, but 26.0 points below May 2006. It is also well below the long term average of expectations in Germany, which is an excess of optimists over pessimists of 33%.

Two indicators of consumer confidence were also released today--one for Italy and one for Turkey. Consumer confidence in Italy, expressed in terms of an index with the base 1980, has increased irregularly since May 2004 as can be seen in the third chart that shows the historical record for this series. The May figure was 109.5 up 1.6 points from April but still well below the previous peaks of 126.9 in February 2002 and 130.7 in November 1988.

The Turkish measure of consumer confidence has four components: Personal Financial Standing, General Economic Situation, Expenditures and Price Expectations. The results of the surveys of these factors are shown as four diffusion indexes. The general index is calculated by taking arithmetic means of the four diffusion indexes. The range of the general index is 0 to 200. If it is above (below)100, it means consumer confidence is optimistic (pessimistic). A value of 100 indicates a neutral position. Data are available only since December 2003. The fourth chart shows that while consumer confidence in Turkey has recovered from a low point reached in July 2006, it is still in pessimistic territory.

BUSINESS AND CONSUMER CONFIDENCE IN EUROPE May 07 Apr 07  May 06 M/M Dif Y/Y Dif 2006 2005 2004
Euro Area  (ZEW)
  Current Conditions % Balance 81.8 69.9 18.3 11.9 63.5 23.8 -28.7 -41.1
  Expectations Six Months Ahead,
  % Balance
22.3 10.7 47.7 11.6 -25.4 26.6 32.3 52.1
Germany (ZEW)
  Current Conditions % Balance 88.0 76.9 8.7 11.1 79.3 18.3 -61.8 -67.7
  Expectations Six Months Ahead,
  % Balance
24.0 16.5 50.0 7.5 -26.0 22.3 34.8 44.6
May 07 Apr 07  Mar 07 Feb 07  Jan 07 2006 2005 2004
  Consumer Confidence  (1980=100) 109.5 107.9 112.5 111.6 110.3 105.7 104.2 101.5
 Consumer Confidence (Index >100,
 Optimistic: < 100, Pessimistic:
n.a. 93.7 92.4 92.7 91.8 95.6 100.2 106.7
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