Eurozone: No place like home as economic sentiment increases in May - ING

Bert Colijn, Senior Economist at ING,  notes that the economic sentiment strengthened in May (from 104 to 104.7), indicating that the moderate pace of growth in the Eurozone economy likely continued in May.

Key Quotes

“Sentiment among consumers led the way this month, as consumer confidence increased, while retail trade and construction also improved. This shows that the Eurozone expansion is currently led by domestic demand as employment is recovering.

Industry saw a stable reading of sentiment in May, while the service sector posted a small decline. This decline in service sector sentiment was because of decreased assessment of past activity, while expectations for future demand improved significantly. There’s no place like home for Eurozone businesses this summer, as the domestic economy strengthens.

Export order books disappointed again in May. Exports are hurting as international trade is weak globally and uncertainty surrounds many of the Eurozone’s export partners, from Brexit concerns in the UK to economic and political uncertainty in Russia and Turkey. This is impacting the weakening demand expectations in Eurozone industry, which will likely keep economic growth at a moderate pace this summer.

Inflation expectations also showed an interesting hint at recovery of price growth. Consumer price expectations are increasing again, which was the second rise in a row. Especially selling price expectations are improving markedly at the moment. They show the highest reading since July last year in manufacturing, while in services they are even at the highest level since 2011. This shows that together with the increase in oil prices that is starting to have a positive impact on inflation again soon, price pressures in non-energy industries are also likely to increase. This will no doubt be to the liking of the ECB, which will take this as a hint that their policy is working ahead of their Governing Council's Thursday meeting in Vienna.”