EU and Country Level Confidence is Still Sinking

At 103.2, the EU confidence index fell by two points following a nearly one point drop in December. The sentiment index now resides at the border of the 70th percentile of its range since 1990. In absolute terms services and the industrial sector give the most lift to the region. But once alternatively ranked within their own ranges (since 1990) the sectors are repositioned. The industrial sector becomes the strongest residing in the 85th percentile of its range with construction, a battered sector, still doing ‘relatively’ well in the 84th percentile of its range. While the service sector has a high raw score, that is simply the nature of trend-dominated services. When placed within its range, its relative contribution is much diminished. At a percentile reading of 44.7% services in EU is the relative weakest sector, followed by consumer confidence (58th percentile) and retailing (66th percentile). So far only services are performing at a level that is short of their usual mid-point. And the service sector is losing momentum fast.

On a country level sentiment is near its range mid-point in Italy (54.4 percentile) and Spain (46.5 percentile). Germany (58.4 percentile) and France are doing better than that but still are fading. France, especially, is staying in its range’s 75th percentile. The UK, an EU member, is also still strong in the 70th percentile of its range for economic sentiment.

But make no mistake about it, the trends are poor. The weakness extends back to about June. EMU sentiment has dropped (m/m) in each of the past eight months. French and UK sentiment has dropped in five of eight of those months. Spain’s sentiment fell in six of eight months; Italy and Germany in seven of eight.

Over this period the EMU index has shed 9.9 points, Italy has lost 10.4 points and the UK has dropped 9.4 points. German sentiment dropped 8.5 points, Spain’s sentiment fell by 7.4 points and France’s eroded by just 4.9 points.

From their cycle peaks, however, not just the past eight months, Italy (-12.9) and Spain (-12.6) have made the largest drops followed by the UK (-11.0). Germany (-8.5) and France have declined the least with France’s cycle peak to current skid of 5.7 points being the smallest among the largest EMU economies. Still, its momentum points lower.

In various ways we can construct measures of country and sector weakness. It is clear that weakness is widespread across countries and regions in the e-Zone. It is not yet clear how far this trend to weakness will play out. But one very disturbing fact is the lack of participation in the recovery and outright weakness of the consumer and in retailing. Expansion cannot last without bringing the consumer along.