The eurozone economic sentiment indicator rose slightly from 93.5 to 93.8. While at sluggish levels, most sectors saw small improvements in sentiment. The industry was the exception. New orders continue to weaken and although production seen in recent months was a little better, expectations are falling again. For services, recent demand has improved, but demand expectations in the coming months remain weak. Overall, this is in line with an economy that will contract slightly in the current and next quarters.
At the same time, employment expectations fell again in November, indicating that the labor market is changing. We believe that small job losses are possible in the coming quarters.
Consumer inflation expectations fell again in November, which also applies to expectations for sales prices of goods. In the retail sector, expectations about sales prices also fell again in November, but overall services increased again. While the latter may be considered worrying to the hawks on the European Central Bank’s governing council, we want to emphasize that sectors that sell more directly to the consumer once again experienced a modest drop in inflation expectations.
The new inflation data remains very encouraging. Regional inflation data from Spain and Germany for November so far point to a bigger-than-expected drop in eurozone inflation. That data will be released tomorrow and could be another bearish surprise. Overall, inflation appears benign in the eurozone, with weak demand and supply-side pressures remaining mild. For the ECB, this confirms the view that a first rate cut could occur next year. With inflation trending down better than expected, this could happen sooner than expected.