Fathom’s euro area Economic Sentiment Indicator (ESI) weights together survey measures of household and business confidence to gauge underlying economic sentiment. The aggregate euro area ESI fell 0.1 percentage points to 0.3% in April, its lowest level since December 2014. Sentiment has been trending down since the beginning of 2018 in Germany, France and Italy, driving the weakness in the aggregate euro area ESI, while it has been broadly stable in Spain and Portugal.
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The Italian ESI has seen the largest deterioration of the three countries, falling from 1.2% in January 2018 to -0.3% in April of this year. Fathom estimates that trend GDP growth is close to zero and this, coupled with poor sentiment and the increased political uncertainty that followed last year’s general election, has contributed to an underperformance in Italian GDP which fell from an average quarterly growth rate of 0.4% in 2017 to 0.0% in 2018. Despite these headwinds, the Italian economy grew by 0.2% in the first quarter of 2019. However, it is unlikely that this will mark a turning point for Italian growth.
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Conversely, sentiment in Spain and Portugal has been stable, and elevated, since the beginning of 2018. This is reflected in the strong growth performance in both economies, growing 0.7% and 0.6% respectively in the first quarter. Spain has been a standout performer in the euro area since the start of 2014, growing at an average quarterly pace of 0.7%. Domestic demand has been the largest contributor during this period, reflecting in part the rapid recovery in employment.
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While there are multiple factors contributing to the difference in Spanish and Italian GDP growth rates, demographics have played a significant role. Emigration meant that the working-age population fell in Spain during the crisis, but in recent years the trend has begun to reverse and should continue to support growth. By contrast, the Italian working-age population continued to grow during the financial crisis but has since began to fall. This downward trend will continue to weigh on the rate at which the Italian economy can grow in the coming years.
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The charts in this article have been created using Chartbook on Datastream. The Chartbook was initially created by Fathom Consulting in 2012 and is now a catalogue of approximately 9000 charts, covering over 170 countries, analysing up-to-date macro and financial data. Whether it is a particular topic, country or variable you are interested in charting, the Chartbook has everything you need. The Composite FVI, comprised of readings from all four underlying FVIs, is available for 176 countries in the Fathom Proprietary Indices section of Chartbook. To access Chartbook via Datastream search ‘cbook’.
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