​Eurozone: Economic Sentiment Surges

The European Commission's economic sentiment indicator surged to new levels in April, with the services sector now also in expansion mode. The COVID-19 recession is over which is good news, however, inflation expectations continue to increase.

Increasing Sentiment
The European Commission’s economic sentiment indicator increased to 110.3 points in April from 100.9 in March. This number came in well above the consensus forecast which  was 102.2. In fact, in two months, sentiment has gained 16.9 points, and it now firmly above its long-term average. Amongst the larger member states, all countries have seen higher sentiment figures, with the Netherlands gaining 10.7 points, Spain 9.1, France 8.5, Germany 5.7 and Italy 5.3.

Strength in Numbers
There was another surprise as sentiment in the service sector increased by 11.7 points. Industrial confidence is now at a record high, while Confidence in retail and in construction also saw a significant increase. Consumer confidence also improved. The fact that all forward-looking indicators are rising, bodes well for the economy. Production expectations in industry reached their best reading on record, while stocks are considered to be scarce supply. This is at the same time as increasing demand expectations across all sectors.​

Investment and Consumption​
Capacity utilisation rose to 82.5% according to the quarterly survey, which is five percentage points higher than in January and also above both the indicator’s long-term average and pre-pandemic level. ​

Once again, this bodes well for a recovery in business investment throughout this year.  Unemployment expectations are also declining, and this means we’ll see a growing number of consumers planning to purchase big ticket items over the next year.

​Inflation Might Not be Transitory
Selling price expectations rose for the second month in a row across all surveyed business sectors and close to a record high in industry, but we are also seeing the numbers above their long term average in construction, retail and even the services sector. Consumer price expectations increased only mildly.

​The big question is how transitory these price increases will be. Will they disappear once some of the supply chains problems are resolved? With strong demand continuing into the second half of the year, it seems unlikely that price tension will fade away quickly.