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EMU CommentEconomic confidence drops to lowest level in a year

  1. Economic Sentiment Index fell from 112.3 to 112.1 in July (estimated 112.0)
  2. Confirms weaker growth momentum
  3. Global trade uncertainty may be gaining
Further signs of trade war jitters
Today's Economic Sentiment Index (ESI) from the European Commission reinforced the message from last week's flash PMI that the global trade conflict might be weighing down growth momentum in the eurozone. Even though the decline in the ESI from 112.3 to 112.1 in July was marginally better than expected (112.0), it still marked the seventh consecutive quarter of decline and the lowest level since August last year. There are still no signs of a more abrupt slowdown, but the upshot is that growth has cooled with no imminent signs of reacceleration.
Trade war and bottlenecks hamper outlook
One reason for the slowdown might very likely - as mentioned - be the ongoing trade war, which also in the eyes of the ECB is a prominent risk to the economic outlook (it is, in our view, still too early to assess the apparent truce struck between the EU and the US last week). Thus a gauge of export orders in the ESI slipped to its lowest level in a year and production expectations declined. The economy is still bolstered by encouraging domestic fundamentals as lower unemployment is supporting consumer spending and investments, but it is also clear that companies with a strong export focus are becoming more concerned. While some part of the slowdown is caused by trade worries, increasing bottlenecks might also be weighing on the growth momentum, with capacity utilisation running at close to record highs in the eurozone.


Jes Asmussen

Chief Economist Denmark


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