Euro area economic sentiment index falls in February, euro area economy likely to grow 0.6 pct in Q1

The Euro area Commission’s February survey adds to evidence of moderation in growth momentum since the turn of the year. The headline euro area economic sentiment index dropped for the second straight month, and by 0.8 points, the most in 18 months, to slightly lower than the fourth quarter average. Amongst the member state ESIs, there was a huge drop in France to an eight-month low, and more moderate falls in Germany and Spain. On the contrary, ahead of this weekend’s general election, the Italian headline indicator recovered from a weak January, although staying below the fourth quarter average.

With the exception of services where a rebound in the headline sentiment index contrasted with the decline in the respective PMI, the Commission survey reported a weakening of confidence in all sectors at the euro-area level, noted Daiwa Capital Market Research in a report. The fall was marked among consumers for which the decline of over one point in the flash index was affirmed, with falls in the respective indices for each of the large member states.

In the meantime, the fall in industrial sector sentiment mainly reflected a notable reduction in production expectations, with retailers and financial services companies also more downbeat about expected future demand. Staff recruitment plans seem to have been downwardly revised too. And, having reading a five-year high in January, consumer price expectations deteriorated, with similar downwards revisions to selling price expectations of retailers, services and construction firms all likely to have been greeted with disappointment at the ECB, stated Daiwa Capital Market Research.

“Overall, today's survey results - which often provide the most reliable guide to economic growth - support our forecast that euro area GDP in Q1 will grow by 0.6 percent Q/Q, the same rate as Q4, before moderating gradually in Q2 and Q3”, added Daiwa Capital Market Research.

Similarly, even if headline inflation is expected to pick up in March, the survey also implies that underlying price pressures would continue to be comparatively contained, at least in the near term.

At 20:00 GMT the FxWirePro's Hourly Strength Index of Euro was slightly bearish at -67.1964, while the FxWirePro's Hourly Strength Index of US Dollar was highly bullish at 165.914. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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