Euro area economic sentiment dips in March, weakest readings in France and Spain

Economic sentiment in the euro area dipped slightly in March as the readings for France and Spain fell back, although for the first quarter as a whole it pointed to an implausibly strong growth spurt, according to some economists.

The European Commission's Economic Sentiment Index for the whole of the Eurozone slipped from a reading of 108.0 for February to a reading of 107.9 in March.

France's ESI retreated from 105.9 to 104.9 with a sub-index for industrial confidence falling from -1.4 in February to -3.8 for March.

In parallel, Spain's ESI dropped from 108.7 to 106.9, amid declines in confidence within industry, services and especially in construction.

Souring sentiment in those two countries offset a rise in the German ESI to its best level in at least one year; it increased from 108.3 to 109.2.

Euro area sub-indices in detail

A sub-index of industrial confidence also slipped, from a reading of 1.3 in February to 1.2 in March.

On a rosier note, the gauge tracking consumer confidence improved from -6.2 to -5.0, while that for construction rose from -10.1 to -9.9.

The retail trade confidence sub-index was unchanged from one month to the next at 1.8.

Commenting on the data, Claus Vistesen, chief Eurozone economist at Pantheon Macroeconomics, pointed out the disparity between Thursday's readings for confidence levels in the industrial and services sector versus the "sizzling" purchasing managers' index published earlier in the week.

Vistesen also highlighted how the Greek ESI continued to point to very weak growth momentum.

"EC sentiment points to a solid pick-up in EZ GDP growth at the start of 2017, despite the dip in March. But the headline has been too optimistic recently, so we can’t take its prediction of q/q GDP growth at 0.7% seriously."

"While this is a very decent survey and suggests that the Eurozone economy is pretty well placed going into the second quarter – there are some hints that economic activity may struggle to kick on," Dr. Howard Archer, chief Eurozone+European economist at IHS Markit chipped in.

Dr. Archer pointed to the lower employment expectations in multiple sectors to make his case.

"Additionally, consumers' perception of now being a good time to make major purchases dipped to a 12-month low in March, clearly influenced by higher inflation. However, they were modestly more upbeat about the next 12 months being a good time to make major purchases."