Euro Area: Economic sentiment eases but remains upbeat in August
Sentiment in the Eurozone dropped to 117.5 in August from all all-time high of 119.0 in July. The index however remained well above its long-run average of 100 for the fourth time since the outbreak of the Covid-19 pandemic. August saw deteriorations in sentiment in the services and industrial sectors. However, the construction sector recorded an improvement in confidence, while sentiment in the retail trade sector remained virtually unchanged. Meanwhile, consumers grew less confident. On the other hand, employment expectations strengthened. Lastly, selling price expectations continued to increase markedly in all but the services sector and consumer price expectations climbed as well.
In terms of specific countries, sentiment fell the most in France and it also lost strength in Germany, Italy and Spain.
Commenting on the release, Bert Colijn, senior Eurozone economist at ING, stated:
“The ESI indicated that August selling price expectations for goods reached a record high. This confirms expectations of above target inflation for the ECB until at least the end of the year and adds upside risk to the inflation outlook. […] We expect it to remain elevated for most of 2H as the German VAT hike, pricing through of cost increases and reopening in services cause upward pressure on core inflation.”