Eurozone Indicators
This is an announcement of any change in monetary policy following the first meeting of the month by the European Central Bank (ECB) Governing Council (the Governing Council meets twice a month). Unlike the Bank of England, the ECB does not publish any minutes of the meeting. Instead, the President and Vice-president hold a press conference 45 minutes after the announcement, which begins with a statement by the President which is then followed by a question and answer session. The ECB has a stated aim to keep inflation below (but close to) 2% in an effort to maintain price stability.
The Governing Council comprises presidents of Central Banks representing the most powerful economies in Europe and they implement their monetary policy by setting three key rates for the euro area, which are:
- The interest rate on the main refinancing operations (MRO), which provide the bulk of liquidity to the banking system.
- The rate on the deposit facility, which banks may use to make overnight deposits with the Eurosystem.
- The rate on the marginal lending facility, which offers overnight credit to banks from the Eurosystem.
These key interest rates bear a strong influence on all other rates in the euro area.
High rates may serve to hinder economic growth (for example, by making it more expensive for businesses to accommodate their debt-loads) but may help to combat inflationary pressures (higher rates tends to curb consumer spending). Low rates, meanwhile, should stimulate the economy, but can lead to spiralling inflation.
If the ECB's decision is unexpected it can have a potent effect on European financial markets.
The Consumer Price Index (CPI) measures the average price of a fixed basket of goods and services as might be purchased by consumers and provides a guide to the rate of inflation in the euro area.
A Core figure is also released that excludes food and energy prices. Food and energy are volatile components in the CPI basket and can cause distortions that only represent short-term factors.
The headline figures for the Eurozone CPI are a monthly and annualized percentage change.
A rising CPI indicates inflation and a high CPI suggest significant inflationary pressures in EMU economies. The European Central Bank aims to keep inflation at 2% or lower, and a high CPI figure puts pressure on the ECB to raise interest rates. Generally speaking, higher interest rates should be good for the euro, but negative for bond prices and stock prices.
It is a measure of the output and activity of the construction industry, for both the public and private sectors.
A high figure, indicating high levels of construction in the euro area, implies a growing economy: businesses are not going to invest in the expense of construction unless the funds are available and they are optimistic about the returns on such investment.
Because levels of construction are so closely tied to changes in economic growth, the index is frequently used as an indicator of the business cycle.
It is a survey of over 1000 retailers from Germany, France and Italy (the three largest economies in the euro area) that gauges business optimism.
Respondents complete a questionnaire over a five-day period during the final week of the month. A single-figure 'diffusion index' is compiled from the percentage of responses reporting an improvement, deterioration or no change for each variable.
A headline value above 50 indicates growth, while a value below 50 indicates contraction; the greater the distance from 50, the stronger the effect.
The Bloomberg PMI is released well ahead of government retail sales figures, so it is the earliest gauge of how the retail sector is performing.
Trends in PMI can give a glimpse into consumer spending patterns. High consumer spending fuels economic growth, but may create inflationary pressures. A figure above 50 is generally considered to be bullish for the euro, whereas a figure below 50 is normally considered to be bearish.
It is a measure of the output and activity of the construction industry, for both the public and private sectors.
A high figure, indicating high levels of construction in the euro area, implies a growing economy: businesses are not going to invest in the expense of construction unless the funds are available and they are optimistic about the returns on such investment.
Because levels of construction are so closely tied to changes in economic growth, the index is frequently used as an indicator of the business cycle.
It is a survey that measures the sentiment of consumers across the EMU.
The survey contains queries regarding personal finance, employment, savings and general expectations about the economy.
The figure is derived from the difference between positive and answers. A positive figure therefore indicates positive consumer confidence and vice versa.
If consumer confidence is high it should generally be good for the economy going forward: if consumers are confident about their finances, they are more predisposed to spend. If confidence is low, spending is likely to fall. Low consumer spending hampers the economy, whereas high spending tends to spur economic growth, although it can lead to rising consumer prices.
Economists polled by Bloomberg gave a median forecast of -12, which is the same as last month's figure.
The ECB's Current Account gives a thorough inventory of the ways in which the European Monetary Union's economy is operating in conjunction with other economies around the globe.
Current account is one of the three components, along with Financial Account and Capital Account, that comprise an economy's Balance of Payments.
The Current Account gives details of the Trade Balance (exports and imports for goods and services), income payments (such as interest, dividends and salaries) and unilateral transfers (aid, taxes, and one-way gifts).
A Current Account surplus (that is, a positive number) shows that the flow of money from these different components into the EMU is greater than the flow of capital out of the region. A Current Account deficit (negative number) means the opposite: there is a net capital flow out of the economy.
The headline number is the Current Account balance and the percentage change in the Current Account from the previous month.
The state of the ECB's current account bears a significant influence on the strength of the euro. A persistent Current Account deficit may cause the euro to depreciate, reflecting the flow of euros out of the economy, whereas surpluses may lead to a natural appreciation of the euro.
Many of the components that make up the final Current Account, such as production and trade figures, are known well in advance, which can diminish the impact of this economic release.
Gross Domestic Product (GDP) is the broadest overall benchmark of economic activity and quantifies the production of goods and services within the euro area.
It is calculated by adding up all expenditures on all final goods and services produced during the year as shown:
GDP = C + I + G + (X - M)
Where:
C = Consumption
I = Investment
G = Government expenditure
(X-M) = Net exports (exports minus imports)
The headline figure is the annualized percentage change.
An increasing GDP indicates an improving economy, which is generally good for sterling and for the financial markets. Extremely robust economic expansion can create inflationary concerns which may contribute to tightening of monetary policy.
Most of the components that comprise the report are known well in advance, meaning that GDP tends to be well anticipated. If, however, the figure does differ from expectations, it does have the potential to cause significant market movement.
It is a measure of the value of new contracts for goods produced by the industrial sector.
The two headline figures released are percentage changes: one an annualised change and one for month-on-month.
Although manufacturing only contributes to around 25% of GDP in the euro area, the sector is largely responsible for volatility in the GDP. A high or rising figure indicates increased production in the industrial manufacturing sector, and therefore may point towards a rising GDP.
It is a report that measures the change of output of the industrial sector (eg, manufacturing, energy, etc).
The figure may be adjusted to take into account seasonal variations in production and/or for the number of working days in the given period.
The industrial sector constitutes one quarter of the GDP of the euro area, but is responsible for far more than 25% of the volatility in GDP. Economic downturns/upturns are usually manifested more in the industrial sector than other sectors that contribute significantly to GDP.
It is a measure of all currency in circulation, large time deposits, institutional money-market funds, repurchase agreements, debt securities and larger liquid assets.
It is an important inflationary indicator, as the exchange rate is affected by monetary expansion.
An increase in M3 is positive (bullish) for the euro whereas a decrease is seen as negative (bearish).
A measure of the prospects for the economy of euro area as a whole, intended to give early-warning indications of signs of growth or expansion. The report is provided by the OECD, one of the foremost international economic research institutions, who measure a number of indicators that are generally accepted to precede economic expansion or contraction. The report is designed to provide more of a guide to the direction in which the economy is moving, rather than a measure of the magnitude of any movement.
As well as providing possible insights into the direction of the overall eurozone economic environment, the release has the potential to move euro exchange rates. The headline figure is an index using 100 as the base point; a high reading is generally bullish for the euro and a low reading as bearish.
This is a monthly survey of purchasing managers across Germany, France, Ireland, Italy and Spain that measures business conditions in the services sector. Together, these five countries make up approximately four fifths of the total service sector of the EMU.
The responses recorded by the survey are used to compile an index, the headline figure of which indicates growth above a figure of 50, but contraction beneath 50 (50 represents the so called 'boom-bust' line).
The services industry constitutes a major chunk of the total GDP of the euro area (about two thirds) and therefore any indicator of how this industry is doing also points the way as to how the overall economy is faring. A higher PMI Services level indicates a trend for increased productivity and employment in the service sector, and suggests a healthy economy.
It is a monthly survey of manufacturing sector activity.
The survey gives an idea of the economic outlook as figures tend to match the overall state of the economy. A high PMI indicates an increase in materials purchased, and a figure above 50 indicates positive business conditions.
The PPI is a basket that reflects the prices being paid by producers throughout the euro area in all stages of processing (crude materials, intermediate materials, and finished goods).
The headline number is expressed as a month-on-month or annualised percentage change.
It is a measure of the combined value of all goods and services sold in the month at retail venues throughout the UK.
The report gives clues of both consumer confidence and consumer spending. If sales are high, it follows that spending is also high, and that consumer confidence is likely to be high as well.
Higher consumption should spur economic expansion, but may also fuel price rises. An overheating economy runs the risk of high inflation.
The headline is the monthly percentage change in Retail Sales.
It is the difference between exports and imports of Euro-zone goods and services.
A positive Trade Balance, when the value of exports exceeds the value of imports, indicates a trade surplus.
A negative figure results when imports are greater than exports and indicates a trade deficit.
The headline figure for Trade Balance is expressed in billions of euros, and normally released with a year-on-year percentage change.
The Trade Balance is one of the largest components of the euro area's Balance of Payment, and hence can potentially provide key information about economic pressures affecting the value of the euro.
Exports from the euro area will generally be purchased by foreign importers with euros, so that trade surpluses are a sign that currency is flowing into the economies of EMU countries, potentially leading to appreciation in the value of the euro.
Similarly, trade deficits indicate currency leaking out of the economy, and may lead to a depreciation of the euro.
It is the cumulative percentage of unemployed individuals across the euro area.
The figure is calculated by dividing the number of unemployed in the labor force by the total labor force, yielding a percentage measure.
Individuals are defined as unemployed if they are 15 years or older and without a job, having actively sought employment in the past 4 weeks and are willing and able to work in the next 2 weeks.
A dropping unemployment rate means more people have jobs than before, which generally means they have more money to spend. Higher levels of spending helps instigate economic growth. Low levels of unemployment can also lead to wage inflation, however, which brings overall inflationary concerns.
As this figure is released earlier than GDP figures, it can be useful for gauging the overall economic health of the eurozone, although its impact is somewhat reduced by individual member states releasing unemployment data in advance of this combined rate.
ZEW Survey of Economic Sentiment
A survey of financial experts across Europe canvassing their opinion (positive, negative or neutral) regarding the economic prospects for the euro area as a whole.
The results of the survey are summarised as the number of positive responses minus the number of negative responses.
Gives an idea of expectations for the economy of the eurozone. The higher the number, the better the business climate.
This is a survey of consumer sentiment towards the eurozone economy.
The index derives from the surveys carried out by the European Commission based on certain sector indicators such as; Industrial Confidence (40%), Service Confidence (30%), Consumer Confidence (20%), Construction Confidence (5%), and Retail Trade Confidence Indicator (5%).
A high figure shows a positive outlook to the economy and that levels of investment, business spending and purchasing are healthy.
It is the mean expenditure on individual consumption of goods and services over the period.
If household consumption is increasing, it points towards economic growth and strong consumer confidence, which are generally positive for the economy. If consumption is too high, however, it can cause prices to rise (inflation).
It is a measure of Euro zone industry sentiment based on a survey of production expectations from industrial executives.
The European Commission keeps track of recent order levels and the build-up of inventories. The higher the level of industrial confidence, the brighter the outlook for future business spending and capital investment.
Although manufacturing accounts for approximately merely a quarter of business in the eurozone, GDP volatility is mainly attributable to industry and therefore has an impact on overall European growth.
A figure higher than zero is positive, while a level below zero shows negative industrial confidence.
This measures the cost of the total labour force across the entire Eurozone.
Rising labour costs points towards increasing inflation, which can influence the ECB's monetary policy. High or rising labour costs should generally be beneficial for the value of the euro, whereas a low reading (which could lead to easing of monetary policy) is normally taken as bearish for the euro.
It is the number of cars registered for the first time across the whole the euro area for the given month.
The headline figures released are the monthly and annual percentage changes in the new car registration index.
It can provide a helpful pointer towards consumer sentiment and spending. Motor vehicles are expensive items and if sales are high, it suggests optimism in consumers. If the auto sales are strong, it also bodes well for other significant sectors, such as the manufacturing industry, as well as for overall GDP.