EU business sentiment continues to recover in January

01/30/2023

1 minute read

2023.01.30 09:54

Budrigannews.com – According to data released on Monday, economic sentiment in the Eurozone reached a seven-month high in January on the back of increased optimism in all sectors, with the exception of construction. However, inflation expectations among businesses and consumers were both significantly lower than they had been previously.

This month, the Economic Sentiment Index (ESI) of the European Commission reached 99.9, surpassing a downwardly revised 97.1 in December. This marks the index’s highest level since June 2022.

Despite the energy price and cost of living crises and the war in Ukraine, the rising optimism highlights expectations that an expected economic downturn in the 20 countries that share the euro, if it occurs at all, is likely to be shallow.

According to Oxford Economics economist Paolo Grignani, the increase proved that the worst was over for the euro area.

However, the European Central Bank would likely continue to raise interest rates to reduce inflation, which was above 9% in December, in contrast to the bank’s target of 2%, due to improved sentiment and, consequently, improved economic growth prospects.

Grignani stated:

“The ECB will likely be reassured of the necessity of more hikes in the coming months” by the gradual improvement in confidence.

Consumer inflation expectations fell to 17.7 in January from 23.2 in December, well below the long-term average of 20.0, according to the monthly Commission survey, which is likely to please the ECB.

Manufacturers’ selling price expectations also fell significantly to 31.9 in January from 37.8 in December, indicating that inflationary pressures early in the pipeline were also decreasing.

According to the Commission, optimism increased in services to 10.7 from 7.7 and in industry to 1.3 from -0.6 in December. In January, the consumer mood improved to -20.9 from -22.1, while the retail sector’s mood decreased to -0.8 from -2.7.