EC economic indicators for August likely softening

The slight improvement in both manufacturing and services flash PMIs for August (released last week) and the fact that the EC indicators tend to lag the PMIs, the risk are tilted to the upside.

"The European Commission's economic confidence indicator is expected to decline from 104 to 103.8. This is 0.35 standard deviation higher than the long-term average of 100. Consumer confidence pulled back for two months in a row since June whereas confidence in the industrial sector has been stalling since spring and we expect this trend to continue in August amid concerns about demand from China", forecasts Societe Generale. 

The ongoing high levels in economic confidence suggest that, in comparison to previous months, business leaders are more confident that the euro area is going through a sustainable recovery. Nevertheless, they are not yet convinced that the current recovery will be as strong as previous recoveries. 

"The improvement in consumption growth is expected to start easing going into H2. Regarding the net external channel, disappointing activity in emerging countries such as China suggests global trade growth remains slow, which has a bigger impact on net exports than the weaker euro", says Societe Generale. 

The PBoC move earlier this month will likely form a further drag on global trade. Lastly, debt burdens and the uncertainty surrounding Greece continue to weigh on business and economic confidence. 

"The current levels of economic confidence show that the economic recovery will be firm in Q3 and Q4 (0.4% QoQ) but slower than previous cyclical recoveries. Hence, improvements in confidence are expected to be capped in the coming months", added Societe Generale.