Industry Outlook Improves in 4 Countries, but Some Consumers More Pessimistic

In four countries' surveys of business confidence issued today for February, firms appear to be gaining confidence or, in the case of the UK, at least feeling less pessimistic. At the same time, consumers in two of those nations still view economic conditions as deteriorating.

In the UK, France and Slovakia, the various business climate or industrial trend gauges not only improved from January, but had their best readings since early 2001. The comparable gauge for the Czech Republic edged up in the month from +3 to +5, but that level has been quite common since the spring of 2002.

Despite the better industry positions in the Czech Republic and Slovakia, consumer confidence in those countries is deteriorating markedly. As shown in the graph, the decline in consumers' views in the Czech Republic corresponds to a continuing reduction in employment. Indeed, on a quarterly basis, even over the brief 3-1/2 year history of the confidence data, its correlation with employment data is 63%. In Slovakia, by contrast, there is virtually no relationship between the confidence data and employment, but the unemployment rate has a 72% negative correlation with confidence. The recent unemployment rate of 15.3% is lower than an early 2000 peak of 19.0%, but it has risen from a mid-2003 level of 14.6%, not a promising development. At the same time, GDP in both countries is growing: steadily in a range of 2.5% to 3.5% recently in the Czech Republic and more vigorously at and above 5% in Slovakia. Thus, in both countries, consumers appear more concerned about labor market conditions and less sensitive to overall growth measures.