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Euro Area Business Confidence Falters Despite Upbeat Economy

15 August 2017, 15:16 CET

While the latest news on the European Union's (EU) economic situation is improving, unfortunately, the same can't be said for the confidence of businesses operating in the EU. Recent data from the European Commission shows that although sentiment over the EU economy continues to improve, businesses are a little less sanguine.

EU flagsDetails show that the July Economic Sentiment Indicator for the EU, or ESI, rose to 112.1, up from June's 111.3 - and the highest level since before the 2008 credit crisis. That further increase reflects improved sentiment and performance across the industrial, services, and retail sectors of the EU.

However, looking specifically at business sentiment, across all sectors, a separate measurement calculated by the European Commission, suggests not all businesses are as broadly confident as economic-related signals imply they might be.

Confidence Damaging Euro Forecast

The Business Climate Indicator – BCI – has been fluctuating in recent months and in July, it slipped to 1.05 from June's 1.16. Now, this isn't a steep decline. But it does highlight that Euro Area-based businesses – those countries using the Euro - aren't all uniformly confident that an improving economic backdrop will secure the future of their business.

Specifically, the European Commission stated in a press release that: "While managers' production expectations, as well as their appraisals of overall order books and the stocks of finished products remained broadly stable, their views on export order books and, in particular, past production deteriorated."

Trade Negotiations Are Key

This underscores fears over how Brexit could damage trade with the EU and also implies some concerns over the broader global situation right now, too. According to financial and business experts, Corporate Business Solutions, it's only natural that businesses are concerned over the future of their trade relationships – particularly with the UK. However, once negotiations begin to bear fruit and decisions and agreements are made, those concerns should begin to shrink as the way forward becomes clearer for both EU and UK-based businesses.

It's likely, however, that the fluctuating path of the European Commission's BCI will continue, at least until more certainty over the future is achieved. But, while the survey is evidence that businesses are concentrating on future planning and the direction of their company, the improving economic situation is evidence it's not all doom and gloom.

When the economy is improving, it shows that people are in work, businesses on the mainland are productive and spending levels are good. Indeed, according to the latest Visa spending index, spending in Ireland has improved modestly during the past three months.

So, while EU businesses might not be as confident over the future as you might expect against the positive economic backdrop, given the underlying issues, that's only to be expected. But, that cautious outlook shouldn't detract from the fact that the EU economy really is becoming brighter.

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