>EURO ZONE: Losing confidence

Sentiment continued to lose ground in the eurozone. Today, the European Commission published its closely watched Economic Sentiment Indicator, which came in at 89.9, down by 0.6 with respect to the previous month. The survey clearly suggests that GDP may have fallen in Q2 2012. With activity entering a contraction area and inflation easing, the probability of a rate cut at next week ECB Governing Council meeting are increasing.

􀂄 Sentiment continued to lose ground in the eurozone. Today, the European Commission published its closely watched Economic Sentiment Indicator (ESI), which came in at 89.9, down by 0.6 point over the month, plunging to its lowest level since October 2009. The EuroCoin indicator (which provides an estimation of quarter-onquarter GDP growth rate, also released today), showed a similar trend, dropping from -0.03 in May, to -0.17 in June.


􀂄 Over the quarter, the ESI lost more than 3 points and it is clearly signalling that GDP may have contracted in Q2 after, stabilising in Q1. The unusually high level of uncertainty has significantly weighed on business and consumer confidence. Businesses expect demand to remain extremely weak over the coming months; order indices continued to decline in June. Manufacturers judge their levels of inventories too high, and consequently are scaling downwards their production.


􀂄 Rising fears of unemployment, combined with poor economic prospects, are dampening households’ confidence. Indeed, the relative index lost 0.5 point over the month. Prospects for private consumption are everything but buoyant for this quarter and next.


􀂄 The survey confirms that price pressures are very low. Against a backdrop of falling demand, firms’ selling price expectations are decreasing (in June the relative indices lost 4 points in the manufacturing sector and more than 3 points in the services sector), Consumer price expectations 12-month ahead inched up in June,
remaining, however, on a downward trend.


􀂄 With activity entering a contraction area and inflation easing, the probability of a rate cut at next week ECB Governing Council meeting, are increasing.

RISH TRADER