In May the Economic Sentiment Indicator (ESI) picked up again. The indicator’s recovery starting in autumn last year had been interrupted by flat developments in March and deteriorations in April. May brought increases of 0.8 points in the euro area (to 89.4) and 1.1 points in the EU (to 90.8).

In the euro area, the recovery was driven by brightening sentiment in all business sectors except for construction and, to a lesser extent, by more optimistic consumers. Four of the five largest euro area economies saw sentiment improving, namely Italy (+1.5), the Netherlands (+1.2), France (+0.9) and Germany (+0.6). Sentiment in Spain remained virtually unchanged (+0.1).

The increase in industry confidence (+0.8) resulted from a much more positive assessment of the current level of overall order books and, to a lesser extent, the stocks of finished products, which more than outweighed slightly deteriorating production expectations. The positive overall developments were also reflected in a sharply improving assessment of the past production and moderate improvements with regard to the current level of export order books, both of which are not included in the confidence indicator though. Services confidence rallied again (+1.8) after the sharp drop registered in April.

The surge in sentiment results from significantly improved assessments of the past business situation and past demand, as well as – to a lesser extent – managers’ improved demand expectations. Consumer confidence increased slightly (+0.4) and for the sixth consecutive month. While consumers’ expectations for the future financial situation of their households brightened and unemployment expectations declined, consumers were slightly grimmer about the future general economic situation. Their savings expectations remained unchanged. Retail trade confidence picked up (+1.6), driven by sharply improving business expectations, a more positive assessment of the volume of stocks and mildly improving appraisals of the present business situation. Construction confidence is the only business indicator registering a marked drop (-2.0), resulting from a worsened assessment of both order books and employment expectations. Also financial services confidence (not included in the ESI) fell sharply by 3.6 points, driven by deteriorations in all components (past business situation, past demand and demand expectations).

Employment plans were revised upwards in retail trade and (more mildly) in industry and services, while the construction sector reported sharp downward revisions. Selling price expectations increased in all business sectors except for industry. The increase was sharp in retail trade.