Signs of Improvement in European Business and Consumer Confidence But No Euphoria

Entrepreneurs in France and the Netherlands continue to shed some of their pessimism concerning economic prospects, but they are by no means optimistic. From the low point in February, 2009, when pessimists in the Netherlands outweighed the optimists by 22.9%, pessimists still outweigh the optimists by 7.8%. In France, the indicator of business confidence is so created that its long term average is 100 with a standard deviation of 10. The low point at 68 in March 2009 was more than three standard deviations below the long term average. While the indicator has moved up to 86 in October, it is still more than one standard deviation below average. The first chart shows the measures of business confidence in the Netherlands and in France.

Consumers in France and in Italy had become disenchanted earlier than the business community. Confidence among consumers in both countries reached lows in July, 2008. Since then confidence among Italian consumers has improved sharply, if erratically. October was another decline in the upward but erratic path of Italian consumer confidence. The index fell to 111.7 (1980=100) from 113.6 in September. It is, however, almost 17% above the low point. The increase in confidence from the low point among French households has been less dramatic than that in Italy, as can be seen in the second chart. The excess of pessimists over optimists has declined from 47% to 35% in October, an improvement of 12 basis points. In spite of the rise in confidence, pessimism among consumers in France and Italy still outweighs optimism concerning the economic outlook.