The economic sentiment indicator (ESI) improved markedly by 2.5pts m/m to 97.7 in June, according to data by the stats office released on Friday. This is the first monthly improvement in three months, but nevertheless the indicator remained below 100 for the eleventh consecutive month since July 2016. Statisticians said that ESI is currently lagging behind the long-term average by 5.9pts and is lower by 5.1pts y/y (9.4pts y/y in May). The improvement of economic confidence in June was mainly driven by all sectors save for constructors, but mainly by the more upbeat sentiments among retailers and services providers, and to a lesser extent, among industrialists and consumers.
For the first time in four months, sentiments among industrialists were above zero at 2.7, thus improving by 6.4pts m/m. Statisticians noted that the monthly improvement was mainly on the back of the expected increase of production in the next three months. In view of the adverse external developments, namely the seemingly already materializing expectations for a slowdown of the economic activity of the country’s main trading partners, especially Germany, the June improvement in confidence among industrialists is a positive surprise. The more upbeat sentiments might be reflecting the fact that a decision on Brexit was postponed to the autumn, which would delay the negative effects on local industry and economy for some time. Still, despite the monthly improvement in industrial confidence, we see the outlook on the sector as overall mixed. On the one hand, the sector is to remain growth driver thanks to the automotive sector (accounting for about two-fifths of total industrial output), in particular the launch of the new EUR1.4bn car plant of Jaguar Land Rover last October — this is to be so at least this year. On the other however, the car market in Europe is faltering and might be hurt strongly by the possible US tariffs on car imports.
Sentiments among constructors worsened by 2.0pts m/m in June due to more unfavorable evaluation of the overall order books and the expected employment, statisticians said. In view of the high season in the sector, this is worrying with the latter indicating that the qualified labor shortages in the sector prevail. Nevertheless, the June print exceeded the long-term average by 1.5pts (3.5pts in May). The biggest monthly improvement in sentiments was reported among service provides — by 24.3pts m/m to reflect the favorable evaluation of all its three components — business situation, demand for services and employment. Confidence among retailers also improved markedly, by 18.3pts, as a result of positive assessment of the current and also expected business activities, statisticians said.
After a slight deterioration in May, the seasonally adjusted consumer confidence indicator improved by 2.9pts m/m in June to the strongest print in half a year. Statisticians explained that consumers were more upbeat in all the four components of the indicator — expected development of unemployment, households’ savings perspectives, their financial situation and general economic situation. Thus, the June print continued to exceed the LT average. We overall believe that the likely to continue in the short-term improvements on the labor market and the solid wage growth would support the consumer confidence in the next couple of months, thus backing relatively strong household consumption. At the same time, as the projected slowdown of the economic activity is to materialize gradually already this year, we may expect certain deterioration of consumer sentiments, hence household consumption growth moderation in the medium term.