European economic sentiment remains stable despite Brexit

Economic and consumer confidence in Europe remained low but surprised economists by showing no sign of waning since the UK’s decision to exit the European Union, according to the latest sentiment survey.

The eurozone economic sentiment indicator (ESI) released by the European Commission rose to 104.6 in July from 104.4 in June, ahead of the expected decline to 103.5.

Eurozone consumer confidence remained at -7.9, as expected, while the business climate indicator improved to 0.39 from 0.22 a month ago and beating the consensus estimate of a fall to 0.17.

Industrial confidence improved and eurozone services confidence also rose. Across countries, sentiment improved very slightly in Germany and rose more strongly in Italy, offseting small declines in France and Spain.

Economist Claus Vistesen at Pantheon Macroeconomics said the survey indicated that uncertainty over the UK referendum has not been a major hit to the continental economy.

“Overall, this survey chimes with other business surveys for July which shows a limited impact in the euro area, from the elevated uncertainty in the wake of the Brexit vote…so far at least.”

He noted that the headline index has been overestimating eurozone GDP growth recently, but broadly points to stable growth in the short run.

But BNP Paribas economists said while they were surprised by July’s data, they continue to think "it is too early to conclude that Brexit will have little impact on the eurozone".

They added: "The analysis of sub-components suggests the impact is likely to take more time to be reflected in the data. Production expectations in the industrial sector declined by almost one point and firms selling price expectations eased in July, suggesting that businesses expect activity to slow in this sector."

Trader Dennis de Jong at UFX said: “Consumer confidence in the EU has unsurprisingly remained low in the aftermath of Brexit, but ECB president Mario Draghi will take solace that figures are at least stable. The predicted hit from the UK’s EU referendum results was already less than expected, so today’s numbers show that the bloc is proving resilient to the upheaval.”