Euro Area: Economic sentiment at over three-year high in May, but price expectations continue to increase

Euro Area Economic Sentiment May 2021

Euro Area: Economic sentiment at over three-year high in May, but price expectations continue to increase

Sentiment in the Eurozone jumped to 114.5 in May from 110.5 in April, marking the strongest reading since January 2018 and beating market expectations. The index therefore moved further above its long-run average of 100 for the second time since the outbreak of the Covid-19 pandemic. May saw substantial improvements across the board: sentiment in the services, industry, retail and construction sectors strengthened. That said, confidence in the services sector continued to grow the most. Moreover, employment expectations strengthened again. Lastly, selling price expectations continued to increase markedly in all sectors and consumer price expectations strengthened albeit to a lesser extent.

In terms of specific countries, sentiment rose the most in Italy and it also gained considerable strength in France, while improvements were more limited in Germany, the Netherlands and particularly Spain.

Commenting on the release, Bert Colijn, senior Eurozone economist at ING, stated:

“Although downside risks to the eurozone economy remain significant, they have been falling given that the vaccination programmes are picking up and Covid-19 cases are coming down rapidly. This means that the outlook for the eurozone economy is favourable for the second half of the year, and we expect GDP growth to rebound in 2Q and see upside risk to our current 1.4% QoQ growth forecast. […] With input shortages biting, industry is set to pass those higher costs to the consumer, and services are planning to increase prices as sectors reopen. This has been priced into forecasts, but further disruptions in industry bring upside risk to the inflation outlook.”

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