Commentary Directory

EU Economic Sentiment: March 2024

Jacob Hess
March 27, 2024

European economic sentiment improved in March as the European Commission found that its Economic Sentiment Indicator improved 0.7 pts to 96.2. Gains in sentiment were seen in France (+2.6 pts), Italy (+1.5 pts) and Germany (+0.9 pts) while it was flat or down in the Netherlands, Spain, and Poland. The most positive news in the details of the survey was that confidence was building across the board.

The heavily monitored consumer confidence index was one of the subindexes that improved in March, growing 0.6 pts to the highest level since early 2022 when sentiment flopped in response to elevated inflation. European citizens continued to see better financial conditions for themselves and their countries as pessimism eased. This was likely affected by the perception that a rise in unemployment was slightly less likely (Unemployment Over Next 12 Months down -0.4 pts to 18.3) and that observed and expected pricing trends over the last and next 12 months were both easing (observed price trends index down -2.8 pts to 57.4, future price trends index down -2.6 pts to 12.5).

When looking at confidence in various business sectors, the trend of broad-based gains is there as well. Sentiment in industry (+0.3 pts to -8.4), services (+0.4 pts to 6.0), and retail (+0.7 pts to -4.4) were all on the upswing in March while construction sentiment was unchanged at -7.7. In general, businesses across the three gaining sectors were more positive of their views of demand:

  • Industrial managers assessments of the current robustness of order books was “less gloomy” and export orders also saw an improvement.
  • Services managers saw demand expectations pick up despite their assessment of activity in the last few months seeing no improvement.
  • Retail managers were more positive about the activity they had been seeing and were more optimistic that the volume of stocks was adequate and not too high.
  • On the other hand, construction managers were more likely to cite insufficient demand as a factor limiting construction activity (+1.4 pts to 32.8%).

Despite improved outlooks on demand, selling price expectations cooled in key areas. The hottest sector, services, saw a significant drop of -1.7 pts in its selling price expectations index which now sits at 14.8, the lowest level since September 2023. Expectations that prices would rise in retail and construction also both eased with the respective indexes down -2.7 pts to 14.4 and -2.2 pts to 2.4.

The bottom line is that the key categories in the March version of the European Commission Economic Sentiment Survey moved in the right directions. Consumer sentiment improved which was translated into businesses sensing that demand was seeing a slight recovery to end Q1. And while demand expectations were higher, there wasn't a tightening from the supply side in a ramping up of production and prices. This is the perfect kind of mixture of growth recovery and disinflation that the ECB will hope to see maintained in the next few surveys leading up to the key June meeting where rate cuts have been lightly guided.