EU Commission Indexes Continue to Log Weakness

The European Commission indexes for June show the overall index for the Monetary Union slipping to 95.3 from 96.4 in May compared to readings of 98.9 in both March and April.

Countries Among the 18 early reporting European Monetary Union (EMU) members, 13 show month-to-month declines in their overall indexes with one country showing an unchanged index. This compares to 14 showing month-to-month declines a month ago and to 9 countries showing month-to-month declines two months ago in April – the breadth of declines has expanded. The declines being experienced by the overall index are broadly distributed across monetary union members; over the last two months three of the largest four countries show declines in their overall country level indexes as well.

Sectors The sector indexes in June show month-to-month erosion in the industrial sector, the retail sector, in construction and in services. Only consumer confidence is improving slightly on the month. Among the five sectors, four of them have net negative measures with services being the exception posting a plus-6 diffusion reading in June.

Standings The percentile standings of the sector readings show retailing and construction with rankings above their medians. On this ranking metric, the medians occur at a reading of 50 so that any reading above 50 is above the median. Retailing has a reading in the 58.4 percentile while construction has a reading in the 77.6 percentile. However, services, the job creating sector, has a 42.6 percentile standing with the industrial sector at a 39.5 percentile standing. Consumer confidence has a 19.1 percentile standing.

Country level standings show only three of the 18 early reporters with standings above their historic median values. Greece, Cyprus, and Italy have above median readings in June. Among the Big Four economies, Spain has a 41-percentile standing, France a 39.5-percentiel standing, and Germany a 24.7-percentile standing. Italy leads the pack with the only above-medina standing at its 54.9 percentile.

Compared to pre-Covid activity All sector readings in June, including the overall EMU index, show weaker readings than those that existed in January 2020 before COVID struck. The EMU overall index is lower by 10 points than it was in January 2020.

No country is above its January 2020 level of activity. However, Italy and Greece both match their levels of activity for their overall country readings in January 2020 as of June 2023.

On balance, this performance suggests that in the wake of COVID everything remains weak while countries have been through several cycles of being hit by the COVID recession and trying to recover. The bottom line is an activity has generally been impaired compared to what it was in January 2020 and even now there have been some waves of recovery for the most part economies were damaged by the introduction of COVID and still have not been able to restore their past levels of activity.

Assessing the sectors separately, the big four economies show that weakness in the monetary union is relatively evenly distributed. The average ranking for the standings of the big four economies compares relatively closely to the weighted average overall standings of the European Monetary Union. Confidence is an exception; it is more substantially weak in the EMU than in the big four economies on average. Each of the big four economies shows an industrial sector that ranks below its median. Consumer confidence ranks in each country below its median. For the construction sector, the ranking in each country is above its median; for Italy and Spain, the rankings for construction are strong. However, retailing and services have weak readings in Germany and France below their historic medians, while for Italy both the retailing and service sectors have quite strong percentile standing; for Spain the readings are more middle of the road at or just above its historic medians.

The EU Commission readings show a breadth of weakness, particularly concentrated in the industrial sector and impacting consumer confidence. The services sector is broadly weak; retailing is somewhat less impacted than the other sectors and construction remains strong. Comparing the EU Commission indexes to the S&P Global manufacturing and services industries shows quite similar tracking using the two methods for manufacturing compared to industry and in comparison, of the two services sectors.