–Adds Details On Sectors

July — MNI analysts survey — June Revised from
lowest median highest
———————————————————————
Econ Sentiment 103.2 102.0 104.0 105.0 105.4 105.1
Industry 1.1 1.0 2.0 3.0 3.5 3.2
Services 7.9 8.0 9.2 9.5 10.1 9.9
Consumers -11.2 -11.4 -11.0 -9.9 -9.7 -9.8
Retail -3.5 na na na -2.6 -2.4
Construction -24.5 na na na -23.5 -23.6
———————————————————————
Business Climate: +0.45 0.84 0.85 0.85 +0.95 +0.98

PARIS (MNI) – Economic morale in the Eurozone eroded more than
generally expected in July, with declines in all main sectors, the
European Commission said Thursday.

After at 2.6-point slide since February, the Commission’s sentiment
dropped 2.2 points in July to an eleven-month low of 103.2.

Alongside the erosion in other leading indicators, this clearly
points to a loss of economic momentum since the pick-up in 1Q. The
Eurozone composite PMIs and Ifo’s barometer of German business sentiment
began slipping in March as well and Belgian National Bank’s sentiment
index took another tumble this month.

In the Commission’s survey, all the larger economies sustained
further declines in sentiment, led by Italy (-4.5 points) and Spain
(-2.7) and the Netherlands (-2.1). The indicator remained above its
long-term average only in Germany (-1.8) and France (-0.5).

Some correction in leading indicators is to be expected after the
1Q catch-up in construction and related supply sectors following the
harsh winter. But headwinds are also mounting from monetary tightening
in many emerging markets and fiscal tightening throughout most of the
Eurozone.

Eroding business prospects and the cooling of the commodity price
spiral dampened selling-price prospects in all business sectors except
for retail, where expectations recovered nearly a third of the steep
drop in June. The price outlook declined significantly in industry for
the second month in a row and in the services for the fourth straight
month.

Industry morale dropped more than generally expected in July by 2.4
points to a nine-month low, on the back of more cautious production
expectations and more pessimistic views on order books. Past production
declined markedly, while the assessment of stocks continued to improve
from historic lows. Capacity utilization slipped to 80.9% from 81.6% in
April. Firms expected a further marked decline in export volumes in 3Q.

The Commission’s separate Business Climate Indicator also dropped
more than expected by half a point in July to a 13-month low, reflecting
mainly weaker recent production and expectations for the near term, but
also growing pessimism about overall order books and export order books
and rising stocks.

“The current level of the indicator remains very high, but the
steady fall observed since March indicates that euro-area industry has
entered a phase of growth moderation,” the Commission commented.

The Eurozone factory PMI for July was more alarming, signaling a
slight decline in output (49.5) for the first time in two years and a
marked drop in new orders (47.6).

Sentiment in the services was also weaker than analysts had
expected, as the recovery in June was retraced by a 2.2-point fall in
July to a 10-month low — 3.8 points below the long-term average.
Providers reported a slowdown in recent business and expected the trend
to continue.

Confidence in financial services, which is not seasonally adjusted,
plunged in July after falling back to average levels in June. Firms
reported a further steep slowdown in business and were not at all
optimistic about near-term prospects.

The Eurozone services PMI showed activity expanding in July at the
slowest pace (51.4) since September 2009, despite a marginal drawdown in
backlogs. New business growth (51.2) was the weakest in 21 months.

While the Commission’s flash estimate for consumer sentiment was
revised up 0.2 point to -11.2, it was still down 1.3 points from June at
a six-month low, just 1.1 points above average. Consumers were much more
worried about future prospects for the economy and the labor market, but
only slightly more pessimistic about their own future financial
situation and somewhat less downbeat about major purchases, including
cars, in the year ahead. Inflation worries increased after three months
of decline.

The further erosion in retail sentiment was due mainly to weaker
recent turnover and rising inventories. A modest recovery in business is
expected in the near term.

Construction sector morale weakened after a recovery in June, with
an erosion in all components.

Hiring prospects deteriorated in all business sectors in July
except for the services.

–Paris newsroom +331 4271 5540; e-mail: stephen@marketnews.com

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