In August, the euro area’s economic sentiment indicator (ESI) decreased to 97.6 points. Back in June, the indicators for both the euro area and the EU countries were positive (103.5 and 101.8 points), at the beginning of the year the indicator values exceeded 112 points.
The indicator is calculated based on the results of surveys of industrial companies (40% of respondents) and the service sector (30%), consumers (20%), retailers (5%), and the construction sector (5%). A value above one hundred points indicates an expansion of business activity, a value below one hundred points means a slowdown in activity.
The Czech Republic, Denmark, Estonia, Austria, Slovakia, and Finland have the lowest values (below 90 points).
In Germany, the indicator fell from 104.7 points in June to 97.2 points in August. In France, it decreased from 102.4 to 99.8 points. In Italy, the level fell from 105 down to 100.2.
The indicators of Croatia (102.9 points), Greece (101.5), Portugal (103.5), and Romania (100.1) remained positive.
Another forward-looking indicator, the Composite Purchasing Managers’ Index (PMI) according to S&P Global, also showed a fall in business activity in August: the index fell to 49.2 points down from 49.9 points in July. In the service industry, the indicator remained positive, amounting to 50.2 points, but its value turned out to be the lowest over the past 17 months. Manufacturing PMI remained almost unchanged - 49.7 points compared to 49.8 in July.
“Businesses are becoming more pessimistic about economic activity, orders are declining in the industry, demand is shrinking in the service sector, but the labour market remains above the trend,” ING Bank notes. The bank predicts that the Eurozone will enter a “mild recession” in the third quarter of the year.
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Due to high energy prices, the eurozone countries will enter a recession in the third quarter of 2022, Bloomberg said citing the surveyed economists of the UBS Swiss bank. Experts believe that the 19-nation economy will shrink by 0.1% in the third quarter and 0.2% in the fourth.