Slightly Better Climate For Business

The business climate indicator (BCI) for the euro area increased slightly in February by 0.12 points to +37. Management appraisal of past production, stocks of finished products and order books improved and production expectations remained stable.

No Change In Economic Sentiment

Economic sentiment (ESI) in Europe in February 2014 was largely unchanged at +0.2 in both the euro area and the wider EU. Industry confidence improved slightly (+0.4) and the increase in services confidence (+0.8) was due to a more positive assessment of the past business situation but consumer confidence deteriorated due to expectations regarding savings, unemployment and the economic future. Retail trade confidence improved overall. An improved assessment of order books improved the confidence in the construction sector but in the financial services confidence decreased by 2.5 points.

Employment plans were revised upwards in services but remained unchanged in industry. Selling prices are expected to increase in services and construction but to fall in retail and industry. Consumer price expectations were rounded down.

In the wider EU, services and retail were positive but consumer confidence declined slightly especially in the UK. Employment plans were more negative in industry than in the euro area alone but were unchanged in retail.

The Business Climate Indicator (BCI) of the European Commission Director General of Economic and Financial Affairs decreased by 0.15 points to -0.94. The decline was mainly driven by managers' negative assessments of production expectations, past production, overall order books and export order books. Their assessments of stocks of finished products remained unchanged.

Business Confidence In Europe In November

The Business Climate Indicator (BCI) for the euro area from the European Commission went up again in November to 0.96 from 0.91 in October and is at its highest since December 2007. The increase is mainly due to better export order books and optimistic production expectations.

The Economic Sentiment Indicator (ESI) for November also increased in both the euro area and the EU27. The main contributor to the increase was sentiment in services which increased by 2.1 to 10.2 in the euro area and 3 to 7.8 in the EU27. Most reported increases in demand and business situation over the last quarter. The ESI in the euro area was at 105.3 and in the EU27 at 105.2.

5.3% Increase In European Manufacturing Orders

New manufacturing orders increased by 5.3% in August 2010 after a 1.8% fall in July. If the more volatile heavy transport sector including ships, railways and aerospace are left out the increase was still 4.1%. It was the same in the EU27. Total new industrial orders increased by 3.6% and excluding heavy transport equipment the increase was 3.3%. Capital goods were the most significant driver in both areas.

Weak Recovery Reflected In December Demand

Manufacturers are saying that the recovery they experienced over the last few months is very fragile and it is reflected in the recent downturn in output. A slight balance of respondents taking part in the latest CBI Industrial Trends survey report weak demand and order books below normal. The survey also reported the balance of adequate stocks has fallen slightly. Prices are expected to fall in line with the lst two months.

Manufacturing Demand Still Weak But Expected To Improve

A small majority of manufacturing firms responding to the CBI Industrial Trends Survey reported that they expect demand to improve slightly over the next three months. Many of the firms reported order books well below normal and weak export order books only slightly better than last month due to a weaker pound.

Stock levels are more than adequate to meet demand due to capital goods producers pessimistic about output. Domestic prices are expected to fall slightly over the next quarter similar to that in October.

Manufacturers Outlook Getting Brighter

The outlook for manufacturing is the least negative since June 2008 following months of destocking. Only a slight majority of UK manufacturers in the latest CBI Industrial Trends survey expect the volume of output to decrease in the next three months. However demand remains very weak with a majority of manufacturers reporting total order books still below normal for the seventh consecutive month. Export orders are also weak despite the weaker pound.

Exports To Lead Growth Next Month

Medium sized firms are reporting an increase in confidence for the first time since April 2007. They are expecting a growth in orders despite a marked fall in the volume of total new orders in July. Export orders also continue to decline but again firms are increasingly optimistic about exports. As with orders, so output is also slowing, but the optimism about exports includes leading a return to growth in the next quarter.

The quarterly CBI report on SMEs says that business remains difficult but although the indications are that business is still falling it will improve over the next three months. The position of the pound has not made much difference to small and medium sized businesses and their exports but they are responding to improved credit conditions. Firms are still running down stocks and working below capacity.

Export Orders Down

Manufacturers report that export order books are below normal for this time of year as demand for British made goods weakened last month. The latest CBI Industrial Trends Survey says it is the lowest since October 1998. It goes against the recent slight improvements seen since March this year. Total order books are still weak but show a modest improvement and the pace of decline in output is slower. Prices are expected to fall slightly over the next quarter but more slowly than previously expected.