Eurozone economic sentiment ends 2015 on a strong note - ING

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 7, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Delhi) – Peter Vanden Houte, Research Analyst at ING, notes that the European Commission’s economic sentiment indicator (ESI) for the Eurozone unexpectedly rose to 106.8 in December from 106.1 in November.

    Key Quotes

    “This was significantly better than consensus (106.1). Except for retail trade confidence (mild winter weather hurting clothing sales and terrorist fears might have weighted on sentiment), there was a sentiment improvement in all sectors. Industry confidence showed a 1.2 point increase, while the more domestically oriented services sector saw a 0.2 point increase, now significantly above its long term average. Sentiment in the construction sector rose for the third consecutive month. Hiring perspectives were both stronger in manufacturing and in services. Consumer confidence rose from -5.9 to -5.7.

    The country breakdown, meanwhile, revealed a strong increase in sentiment in Spain (+3.4) and to a lesser extent in Italy (+0.4), while Germany (+0.0) and France (-0.1) remained broadly unchanged. The Netherlands saw a strong decline (-2.4). In Greece the economy seems to be bottoming out now (+0.6).

    Selling price expectations declined across the board (except for construction), with consumer inflation expectations remaining flat. This clearly shows that there is little upward inflation pressure for the time being.

    The good news is that the Eurozone recovery seems to have become quite resilient, with the tailwinds (low interest rates, weak euro, cheap oil) more than compensating the headwinds (weakness in emerging economies, terrorism). That said, as the current recovery is not firing on all cylinders yet, growth is expected to remain subpar. As long as the external growth environment remains weak, Eurozone growth will continue to be below potential. We expect 1.6% GDP growth in 2016, after 1.5% in 2015.

    At the same time inflation might well dive below 0% again on the back of the renewed fall in oil prices, a development the ECB is not likely to welcome as it also might push inflation expectations down again. The ECB staff forecast of 1.0% inflation for this year looks overly optimistic. While the better economic figures might vindicate the ECB’s wait-and-see stance, pressure to beef up its QE program is likely to emerge again in the coming months, as inflation will continue to undershoot the ECB’s objective.”
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