European Economic Sentiment Shows Sharp Improvement With UK Leading Gains

The economic sentiment indicator, or ESI, in the 27-member European Union, or EU, sharply rose by 2.4 points to reach 100.6, lifting the indicator above its long-term average for the first time since July 2011. In the 17-member euro zone, the indicator gained 1.6 points to reach 96.9, which was its fifth consecutive increase and left the index at its highest level since August 2011.

The ESI improved in three of the five largest euro zone economies -- Spain (2.5), Italy (2.5) and France (1.6) -- while the German indicator remained broadly unchanged at 0.3, data released by the European Commission on Friday showed.

“September’s European Commission (EC) business and consumer survey echoes the message from the PMI earlier this week that the euro-zone economy probably expanded again in Q3,” Jonathan Loynes, chief European economist at Capital Economics, said in a note.

In the EU, where the improvement in economic sentiment was more pronounced than in the euro zone, industry, services and consumer confidence improved markedly than in the euro zone, but the improvement was weaker in the retail trade and construction sectors. The main reason the EU performed better than the euro zone was because of a jump in UK's economic sentiment indicator, which gained 6.9 points.

Industry confidence in the euro zone increased by 1.1 points in September, driven by positive production expectations, while services confidence clocked a gain of 1.9 points, mainly due to improved appraisals of demand expectations.

The consumer confidence indicator continued its upward trend, which has been in place since December 2012, gaining 0.7 points primarily due to optimism about the general economic situation in future, hopes for a better employment scenario and the future financial situation of households, which outweighed increased pessimism about savings over the next 12 months.

The retail trade confidence indicator surged by 3.6 points, due to a positive outlook about the present business situation and also due to improved assessments of future business and volume of stocks. The construction sector, which recorded a gain of 4.4 points in the confidence indicator, saw its highest increase among all sectors surveyed, with better assessment of orders and improved employment outlook.

The financial services confidence indicator, which is not included in the main ESI, jumped by 6.1 points, riding on an improvement in demand expectations, as well as improving assessments of historic demand and past business situations.

The business climate indicator for the euro zone remained mostly unchanged at a negative 0.20 points in September, due to a negative assessment of past production, despite an improvement in production expectations and export orders.

The EU financial services confidence indicator gained 5.5 points, which was lesser than in the euro zone.

“The most striking point is probably the continued relative weakness of France (ESI 93.1, just above Greece) versus Germany (104.1). Overall, another sign that the euro-zone has continued to grow, but far too slowly to address the region’s unemployment and debt problems,” Loynes said.

The French economy grew 0.5 percent in the second quarter of 2013, on a quarterly basis, after a 0.1 percent decline in the first quarter, while its annual rate of growth was 0.3 percent after a decline of 0.5 percent in the previous quarter, data released on Friday by the National Institute of Statistics and Economic Studies showed.