Economic Sentiment and Consumer Confidence in Europe Improve

Economic sentiment in the European Union, and particularly the Euro Zone is improving. The Business Climate Indicator (long-term average = 100) for the individual countries of the European Union, together with the aggregates for the EU (25) and for the Euro Zone (12) were released today by the Directorate General for Economic and Financial Affairs of the European Commission. In addition, the results of surveys of the manufacturing, retail, service and construction industries and of consumer confidence were released.

The Business Climate Indicator for the EU(25) as a whole has generally been better than in the smaller subset, the Euro Zone, as shown in the first chart. The better sentiment in the EU as a whole may be due, in part to the inclusion of the emerging central and eastern countries where recent growth prospects have been stronger than those in the west. But there are faint signs that sentiment in the Euro Zone may be improving faster. The sentiment indicator for the EU was 102.6 in January, an increase of 1.28 % from December, but 0.48% below January of 2005. The indicator for the Euro Zone was 101.8 up, 1.19% from December but, significantly, 1.29% above January 2005. The Index for the Euro Zone is now at its highest level since June 2001.

Among the countries showing an improved business climate were Germany, Italy and Poland. We've charted the business climate indicators for a Euro Zone and a Non Euro Zone country--Germany and Poland--in the second chart. Germany's muted rise contrasts with the dynamic rise that has taken place in Poland over the past three years. Another Euro Zone and Non Euro Zone comparison is shown in chart 3 where the business climate indicators for Spain and the United Kingdom are compared. After rising sharply in late 2003 the indicator for the UK plunged in early 2005 and has yet to show significant improvement. The course of the business climate indicator for Spain has been less dramatic, but shows a definite waning of business sentiment.

Similar to the comparison between the business climate indicator for the EU and the Euro Zone, the comparison of the consumer confidence indicators shown in the fourth chart suggests some slight improvement in consumer confidence in the Euro Zone relative to the EU as a whole.