European confidence is just for manufacturers

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Ahead of our Manufacturing Outlook publication on Monday, today the European Commission published their results for its Business and Consumer Survey.

Optimism is breezing around Europe

As anticipated by the flash release published a week ago, the Consumer Confidence Index (CCI) for the Euro area and European Union has reached its highest level since 2001. Similarly the Economic Sentiment Indicator (ESI), a weighted index which takes into account confidence levels for industry, consumers, retail, construction, and services, is skyrocketing with some countries such as France, Spain, and the Netherlands enjoying an extremely positive view about their economic future.

This month the Euro area ESI overtook the same index for the EU for the first time in 5 years (this already happened for the CCI in June 2017). The reason is related to the biggest EU non-Euro area economy: the UK.

The breeze is not flowing across the Channel

The country registered a drop of 1.5 in the last month which wiped out the good performance registered in the previous survey. Overall, the ESI index is currently higher than it was at the time of the EU referendum, however the push forward, which our European partners are experiencing, is not felt by Britain, or at least not by every sector…

Industry is the only sector clearly confident about the future

Services and retail sectors, which used to be the most confident before the referendum, are now at a level much lower than before. UK consumers feel not so confident with inflation squeezing their purchasing power and average earnings not able to pick up. As the graph shows, the industry sector is the only one in clear countertrending.

Sector_confidence 

Why do industry feel confident?

Going into details, production trends and future expectations are way above the long term average. Same for order book levels and in particular those regarding exports.

The industrial sector also feels extremely competitive in the foreign market and in particular in the EU market. This shift happened in the third quarter of 2016 and it is difficult to not relate that to the Sterling depreciation.

Need for investment

Manufacturers should always be focused on skills and here you can find out what we would like to see at the Skills Summit tomorrow, however this can’t be enough.

The great performance of the sector hasn’t been fully supported by a very high level of investment so far. Businesses may be scared about the uncertainties of the future as our Investment Monitor findings confirmed, however they have to deal with reality: their current equipment can’t satisfy demand for much longer without new investments.

Capacity_utilization 

The current level of industrial capacity utilization reached 84.7%, which is the highest level since 1995 and close to the peak registered at the end of the 80s.

Set a reminder for Monday

On Monday you will be able to find out if our results match what the European Commission, so set a reminder and stay tuned!

 

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