June — MNI analysts survey — May Revised
lowest median highest from
Econ Sentiment 98.7 97.0 98.0 100.0 98.4 —
Industry -6 -8 -7 -5 -6 —
Services +4 +2 +3 +4 +3 +5
Consumers -17 -19 -17 -15 -18 —
Retail -6 na na na -6 -6
Construction -30 na na na -28 —
Business Climate: +0.37 na na na +0.37 +0.34

PARIS (MNI) – Contrary to most forecasts, economic morale in the
Eurozone recovered slightly in June, as brighter services and consumer
sentiment offset a further erosion in construction, the European
Commission said Tuesday.

After a 2.2-point downturn in May, the Commission’s sentiment
indicator regained 0.3 point in June to 98.7.

Among the largest Eurozone countries, the biggest declines were
registered in France (-2.3) and the Netherlands (-2.0). In contrast,
Spain (+2.3) reported the biggest increase, though from one of the
lowest levels in the euro area. Improvements were less pronounced in
Italy (+1.4) and Germany (+0.4).

Most analysts had expected the sovereign debt crisis and the
intensification of austerity programs in many Eurozone countries to
weigh on growth prospects. The erosion in many forward-looking
components of the survey suggests that this risk remains for the months

For example, confidence in financial services, which is not
included in the ESI, slipped another point after a four-point downturn
in May, reflecting mainly weaker activity and employment in recent

Industry sentiment was unchanged in June, interrupting 14 months of
recovery from a record low last spring. While producers’ assessment of
order books continued to improve (+2 points), especially for export
orders (+4 points), near-term output prospects were unchanged. Their
view of recent production trends eroded slightly (-1 point) for the
first time in months.

The notable decline in the factory PMI polls since March suggests
that the industry sentiment as measured by the Commission may begin to
erode as well in the months ahead.

The Commission’s separate Business Climate Indicator was also
unchanged in June (see below).

In the services, gains were limited mainly to providers’ assessment
of recent business (+3 points) and employment (+3 points), while
near-term demand expectations eroded further (-2 points after -3 points
in May).

The flash services PMI fell 0.8 point in June from a three-year
peak of 56.2 in May.

As indicated by the Commission’s flash estimate, consumer sentiment
recovered one point in June after a three-point setback in May and is
now four points below average. The uptick was driven by improved
expectations for the overall economy (+1 point) and receding jobless
worries (-2 points). An erosion in medium-term buying-propensity (+1
point) offset an improvement in current plans for major purchases (-1

Retailers expected future business to be weaker (-2 points) and
revised down their order plans accordingly (-2 points) despite a decline
in inventories (-2 points).

The further erosion in construction sector sentiment was driven
mainly by lighter order books (-3 points), which offset a recovery in
recent activity (+2 points).

Sales price expectations rose in retailing (+2 points) and the
services (+1 point), were unchanged in industry, and declined in
construction (-3 points). Price prospects remained below historical
averages everywhere except industry, where higher commodity prices have
offset the slowdown in labor costs.

Hiring prospects improved slightly in industry and retailing (both
+1 point) and were unchanged the services and construction.

The Commission’s separate Business Climate Index stabilized in June
at May’s two-year high of +0.37. Producers’ assessment of stocks and
future output were also unchanged, while an erosion in recent production
trends offset a more upbeat view of order books.

“The current level of the indicator suggests that the recovery of
economic activity in industry will continue in the coming months,
although it may lose momentum,” the Commission cautioned.

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

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