A sense of cautious optimism pervades the Eurozone business landscape with firms reporting more upbeat expectations for the months ahead. This led to an increase in the overall economic sentiment indicator from 95.3 to 95.5. This move is an early, but welcome harbinger of increased business confidence. Despite this positive trend, both the manufacturing and service sectors reported weaker assessments of recent output, suggesting that while expectations may have improved, current performance remains a concern.
Eurozone GDP growth for the second quarter of this year came in at 0.3%, positive growth, albeit marginal. Looking forward, consensus estimates for third quarter growth are calling for a moderate 0.2% increase from the second quarter. That expected expansion is welcome news for companies that were when we last surveyed them preparing to weather more dire economic times. Consumer confidence looks to be on the up, having risen by 0.6 points. Even with this increase, it still doesn’t measure up compared to historical levels.
Analysts are already predicting the economy should expect modest increases in GDP growth. They too are noticing positive indicators that uncertainty is lifting. The prevention of major disruptions to trade has played a part in this rosier outlook. Firms are starting to get more confident about what lies ahead, but risks remain, justifying ongoing caution.
Even though the mood among businesses in Europe has lifted, it’s important to remember that difficulties do persist. The manufacturing and service sectors still grapple with an assessment of recent performance that lacks robustness, which could hinder overall economic momentum. Our economic sentiment indicator for September reflects that guarded optimism. That also signals a fraught trade-off between optimism and the reality of persistent threats.