Euro Zone: The economic sentiment indicator down in November (to 93.7)

Confidence in the Eurozone continued to deteriorate. After nearly stabilizing in October, the Economic Sentiment Indicator resumed declining in November. The index fell by 1.1 point, to 93.7. The decline was broad-based across sectors, but less homogenous across countries. Even tough the pace of decline is smaller than from June to September, it is however likely that confidence indicators have not yet reached a trough in the Eurozone. After a weak +0.2% q/q growth in the third quarter, we expect GDP to contract by the end of the year and at the start of 2012.

• Confidence in the Eurozone continued to deteriorate according to the European Commission survey released this morning. After nearly stabilizing in October, the Economic Sentiment Indicator resumed declining in November. The index (with LT average normalized to 100) fell by 1.1 point, to 93.7.
• Even tough the pace of decline is smaller than from June to September (more than 3 pts a month), it is however likely that confidence indicators have not yet reached a trough in the Eurozone. Most important, prospects for confidence stabilizing in the coming quarter primarily depend on current and future development on the institutional front of the sovereign crisis, where decisive action is needed.
• The November decline in confidence was broad-based across sectors. The sentiment indicators fell for consumers, and in all sectors but the construction sector. After stabilizing in the previous month, the decline in sentiment was the most important in services (-1.8 pt). In industry, the most forward-looking components of the survey, such as exports order books and production expectations continued to decline. There were also an increasing number of managers assessing their inventories as being too large.
• Evolutions were less homogenous across countries. The Economic sentiment recorded the largest falls in Portugal (-6.5 pts), Belgium (-4.6), France (-3.7) and the Netherlands (-1.8). By contrast, it was roughly stable in Germany and, for the second month in a row, in Spain. It improved slightly in Austria, Italy and in Greece (where the ESI is however far weaker than in other Eurozone countries).
• The worsening of the Eurozone crisis has started to erode confidence since June. The decline is now quite significant. The effect on activity is reinforced by tensions on the money market, translating into a tightening of the financial and monetary conditions. After a weak +0.2% q/q growth in the third quarter, we expect GDP to contract by the end of the year and at the start of 2012.