By Marco Babic
ZURICH (MaceNews) – Economic sentiment for the countries sharing the euro improved slightly in May, recovering from historic lows the month before, as industry and consumer sentiment increased while the outlook in the services industry continued to decline, according to data released Thursday by Eurostat.
The Economic Sentiment Index rose to 67.5 in May for the euro area from 64.9 the previous month as industry sentiment improved to -27.5 from -32.5 in April. Consumer confidence improved to -18.8 from -22.0. Services weighed on the overall index, falling to a historic low of -43.6 in May.
The improvement is due to improved expectations rather than a positive view of the current environment. This was borne out by the Ifo data for Germany released earlier this week showing improved expectations, while the gauge of current conditions slipped.
Industry confidence for the euro area “was entirely attributable to a vivid improvement in managers’ production expectations which reversed roughly half of the decline registered in March and April. The assessments of the current level of order books and the stocks of finished products, by contrast, continued deteriorating,” Eurostat observed.
Consumer confidence was boosted by “much improved” financial conditions and intentions to purchase major items.
For the broader European Union, economic sentiment improved as well, rising to 66.7 from the historic low of 63.8 in April.
Employment expectations improved in May to 70.2, albeit from a historical low in April of 58.9, and shows “significantly improved employment plans in all surveyed sectors,” Eurostat said.
On Wednesday, Germany’s IFO institute released its Employment Barometer for Germany, Europe’s largest economy, also showing an improvement. The report warned that despite the improvement, the number of layoffs will outpace hiring and that “unemployment in Germany is set to rise further.”
The Ifo employment barometer rose to 88.3 in May from 86.3 in May driven by improvement in services, rate and construction, while manufacturing was slightly lower.
Even with improved sentiment in the broader economy and in Germany, economic recovery will take time.
A fresh economic forecast from Ifo Thursday shows Germany’s economy contracting 12.4% in the second quarter before recovering in Q3 by 7.3%. For 2020, Ifo expects a contraction of 6.6% from 2019. For 2021, Ifo sees 10.2% growth.
A number of caveats was given with the forecast as Ifo noted: “The new forecast was prepared based on the assumption not that the coronavirus is defeated in the coming months, but that its spread can be contained and a second wave of infection avoided. It also precluded a wave of insolvencies either in Germany or in its sales and procurement markets, which might lead to distortions in the financial system and require a realignment of global value chains.”