December 18, 2017

Chart of the Week: Fathom’s ESIs Shrug off Euro Area Political Uncertainty

by Fathom Consulting.

Fathom’s latest Economic Sentiment Indicator (ESI) for the euro area remained unchanged at 1.4% in November, with the country-level indices confirming that the upswing in economic sentiment remains elevated across the currency bloc.

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France’s ESI saw the largest monthly increase, rising from 0.8% to 0.9%, predominantly driven by strength in both the manufacturing and services PMIs. The headline consumer confidence survey also jumped by two index points to 102.4 in November, indicating that rising optimism about the French economy is broad-based. Surprisingly, ongoing political uncertainty in both Germany and Spain is yet to have a meaningful impact on either country’s ESI, with both remaining elevated. Italy’s ESI continues to outperform hard economic data and is hovering around all-time highs, but elections must be held before the end of May next year and they have the potential to spark fresh waves of volatility, with a reversal in economic sentiment a strong possibility. That being said, the fragility of Italy’s recent upswing in economic sentiment has financial-market implications. We maintain our call that Italy’s weak fundamentals will continue to constrain its long-term growth potential and so stand by our recommendation to hold French and German equities relative to Italian equities.


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