April — MNI analysts survey — March Revised from
lowest median highest
———————————————————————-
Econ Sentiment 106.2 106.7 107.0 107.5 107.3 —
Industry 5.8 6.0 6.7 7.0 6.7 6.6
Services 10.4 10.4 10.5 11.0 10.8 —
Consumers -11.6 -11.4 -11.4 -11.0 -10.6 —
Retail -1.8 na na na -1.4 -1.5
Construction -24.2 na na na -25.4 -25.0
———————————————————————-
Business Climate: +1.28 na na na +1.43 +1.41

PARIS (MNI) – Economic morale in the Eurozone eroded more than
expected in April, with declines in all main sectors except for
construction, the European Commission said Friday.

After a 0.6-point downturn in March, the Commission’s sentiment
indicator shed another 1.1 point, dropping to a five-month low of 106.2
and suggesting that economic momentum may well be peaking.

All the larger economies sustained declines, led by the Netherlands
(-2.0 pt), Italy (-1.0 ), Germany and Spain (both -0.9 pt) and France
(-0.8 pt). The headline index remained firmly above its long-term
average only in Germany, France and the Netherlands.

The Eurozone composite PMIs and Ifo’s barometer of German business
sentiment began slipping in March as well, and Belgian National Bank’s
sentiment index took a big tumble this month.

Some correction in leading indicators is to be expected after the
recent catch-up in construction and related supply sectors following the
harsh winter. But headwinds are also mounting due to the stronger euro,
rising interest rates, the fallout from Japan and soaring commodity
prices. While the cumulative impact appears limited so far, the upswing
has become more vulnerable to eventual further shocks.

Selling price expectations eased slightly in all sectors of the
Commission’s survey in April except for retailing and construction, but
remained well above long-term averages everywhere except for
construction. The April PMIs showed prices charged accelerating to
near-record rates, despite a slight slowdown in input price inflation.

Industry morale slipped 0.9 point, pulled down by a 2.2-point drop
in producers’ assessment of both recent production and near-term output
prospects, despite a recovery in export orders. They estimated that back
orders would assure 3.7 months of production, up from 2.6 months in
January, but their outlook for export volumes fell back markedly from
January’s recent peak, reflecting an erosion in competitiveness in
foreign markets.

While manufacturing capacity utilization rose from 80.3% in January
to 81.3% in April, stocks of finished goods increased to a five-month
high.

The Commission’s separate Business Climate Indicator slipped 0.15
point in April to a four-month low of 1.28, reflecting slowing
production, rising stocks and, especially, weaker output prospects.

“Despite this, the current level of the indicator remains close to
historic peaks, suggesting that the recovery in industry will continue
in the coming months,” the Commission commented.

By contrast, the Eurozone factory PMI recovered slightly this month
(57.7) while remaining below the 10-year high hit in February (59.0), as
stronger production gains (60.0) offset a further slowdown in new orders
(57.3).

The Commission’s index of services sentiment eased another 0.4
point in April to stand 1.3 points below the long-term average.
Providers reported slightly stronger recent turnover but expected demand
to erode in the near term.

Confidence in financial services, which is not seasonally adjusted,
bounced back 3.3 points, retracing most of the downturn in March due to
a recovery in recent demand and activity and in expected demand.

The Eurozone services PMI slipped back 0.3 point in April from
March’s a 42-month high (57.2) due mainly to an erosion in medium-term
expectations (65.9).

The Commission’s flash estimate for consumer sentiment was revised
down 0.4 point to show a one-point downturn on the month, leaving the
index still 0.9 point above the long-term average. While unemployment
concerns eased further, expectations for the overall economy dropped
sharply to a 10-month low.

Consumers reported a further pick-up in recent inflation and were
only marginally less worried about future price trends than in March. As
a result, they expected their financial situation to deteriorate and
thus to be able to save less and spend less on big-ticket items. While
plans to buy a car within the coming year declined further, intentions
to build or buy a house recovered to the highest level in nearly two
years.

Near-term sales expectations in retail also eroded in April, as did
retailers’ assessment of current turnover, which dragged the overall
sector sentiment down 0.4 point to an eight-month low, but still
well-above the long-term average.

Only in the construction sector did morale improve in April,
regaining the 1.2 points shed in March but remaining far below the
long-term average. Builders said recent activity continued to improve,
surpassing the long-term average, and they were less pessimistic about
order book levels.

Employment prospects deteriorated in all sectors except for the
services and construction, with a particularly strong setback in the
financial services.

–Paris newsroom +331 4271 5540; e-mail: stephen@marketnews.com

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