Eurozone economic sentiment declines in August: Is Brexit impact here? - ING

Bert Colijn, Senior Economist at INF, suggests that while the impact of Brexit on Eurozone survey data had been muted so far, businesses have now caught up to a combination of Italian banking problems, the Brexit vote and geopolitical worries as the ESI declinesd to 103.5 from 104.5 in August.

Key Quotes

“Industry orders dropped the fastest since February 2009.

The impact from the Brexit vote on European sentiment remained muted in July, mainly because of strength among businesses. In August though, all sectors except for construction saw sentiment decrease. Consumers had already seen confidence decline in July and the Europeans that weren’t at the beach this month indicated further deteriorating confidence, mainly because of concern about future unemployment.

The large drop in industrial sentiment was mainly because of a sharp drop in the current order book. In fact, the drop was the fastest recorded since February 2009. The decline was also found in export orders, which could well be related to the Brexit developments in the UK, but also to other geopolitical developments on the EU borders. This decline in economic sentiment indicates that Eurozone industry might already be feeling more of the Brexit impact than previously thought.

Confidence in the service sector dropped mostly because of lower expectations of demand in the months ahead, indicating uncertainty about economic conditions in the Eurozone this fall. The question is when this will work through to output in the sector as domestic demand has held up reasonably well in the Eurozone, fueled by decreasing unemployment and relatively high real income growth due to the low inflation environment.

While the ECB meets next week, it seems unlikely that this indicator will impact the governing council’s decision much. With staff projections already made earlier, the ECB will likely assess the economy with very limited post-Brexit vote data. For those that can use the incoming data immediately, it seems to paint a picture of slowing growth in the autumn months. This is in line with expectations, given the uncertainty surrounding the economy.”