EC Commission Indexes for EMU Slide Lower Again

The European Commission indexes of overall confidence and sector assessments for September slipped lower and the European Monetary Union (EMU) with the overall gauge dropping to 93.3 from 93.6 in August. At that level, the overall index has a ranking among historical observations back to 1990 in its lower 24th percentile, an extremely weak reading.

Component or sector readings for EMU The component readings for the index show slippage or unchanged values for all components except the industrial sector where there was a month-to-month improvement in September to -9 from a -10 reading in August. The service sector assessment was unchanged in September at a level of 4.0. The retail and construction indexes each slipped to a reading of -6 in September from a reading of -5 in August. Consumer confidence in the EMU fell to -17.8 in September from -16 in August; it has the lowest component ranking among the five components at a 14.1 percentile standing in September. Confidence in the EMU is doing very badly. The industrial and services assessments also have standings below their 50th percentiles. Retailing and construction have percentile standings above their historic medians (which means they're above the 50th percentile). Construction has a relatively firm standing at a 70th percentile standing; retailing has a 58.7 percentile queue standing.

Country level performance in September 18 of 19 members report country level confidence readings for September; 8 of 19 members show month-to-month declines, the same number as in August and one more than July. Among the largest countries (Germany, France, Italy, and Spain), Italy and Spain showed declines in September while Germany, France, and Italy showed declines in August. Germany and France showed declines in July as well. The large countries have consistently been showing weakness. Because the overall European monetary union gauge is weighted for economic size, this weakness among the largest economies weighs on the overall index.

Standings show broad and intense weakness The monetary union gauge itself has a 24.2 queue percentile standing; this compares to a 15.9 percentile standing in Germany, the largest economy in the EMU. France, the second largest economy, has a standing at its 37.5 percentile. Italy, the third largest economy, logs a 41.1 percentile standing. Spain, the fourth largest economy, has a 39.5 percentile standing. Among the remaining 14 countries, only three have queue percentile standings above their 50% mark. Those are Malta with a 99.6 percentile standing, Greece with the 71.5 percentile standing, and Cyprus with a 62.7 percentile standing. Most countries large or small have overall sentiment standings below their 50th percentile and generally substantially below their 50th percentiles. Among the largest four economies, the highest percentile standing is from Italy with a 41.1 percentile standing; among the other 14 in the table, setting aside the three that have readings above the 50% mark, the highest percentile standing is 39.2% in Lithuania, followed by 33.6% in Slovakia, 29% in Latvia, and 28.5% in Luxembourg.

Large economy sector assessments- Table two presents the percentile standings by sector for each of the four largest monetary union member countries. These standings rank the position of the sector in each country against its historic values on data back to 1990. The table makes it clear that the overall standings for the monetary union are pretty much consistent across the board for the large countries on average. The table presents the EMU sector rankings across the top and at the bottom of the table it presents unweighted averages of the four largest economies for a simple rule of thumb comparison.

Large economy differences- The two smallest of the four largest economies have the strongest readings in the table on a consistent basis; both Italy and Spain have three index components above their historic medians (which means that they rank above their 50th percentile mark). Italy has three quite strong readings with a 97.6 percentile standing in construction, an 88-percentile standing in retail, and a very firm 76-percentile standing for services. The overall Italian reading is dragged down by a 23-percentile standing for industry and a 31.5 percentile standing for consumer confidence. Similarly Spain has above 50-percentile standings in retailing, services, and construction and has an overall queue standing close to Italy's largely because its industry and confidence readings are not quite as weak as the two sectors reported by Italy. In the EMU, only one sector rates a standing above the 50% mark; that's construction. It is below its 50-percentile reading only in Germany. Germany shows extreme weakness for all the metrics, with construction being its relative strongest sector reading. Germany, the largest EMU member, has the weakest standing for every sector except for industry, where Italy manages to be several percentile standing points below Germany. The German economy is consistently the relative worst among the ‘Big Four’ economies.

Smaller country standings Among the eighteen countries reported on the table, only Austria, Estonia, Finland, and Belgium have weaker percentile standings than Germany. The impact of inflation coupled with the sanctions on Russia and trade limitations with China have hit the export-oriented German economy hard as it had significant trade connections with both of those countries. The war dragging on in Ukraine, and with inflation proving to be stubborn, and now in the face of a new increase in oil prices, the outlook for policy in the monetary union will continue to foresee high rates and continue to see economic activity under pressure – a difficult balance.