Eurozone economic recovery on track for strong growth in 3Q - ING

Bert Colijn, a senior economist at ING, notes that the Eurozone's Economic Sentiment Indicator (ESI) declined in August, but still signals strong growth for 3Q.

"The ESI decreased from 119 to 117.5, which is in line with the trend seen in other survey indicators released earlier like the PMIs. The high level indicates that growth remains strong for 3Q, but it does show that rebound growth has probably peaked and is set for moderation from here on."

"Delta fears seem to have the largest impact on weakening sentiment at the moment. Small declines in the indicator for observed business activity in services seem mostly in line with reopening effects wearing off. Expectations for the months ahead are weakening at a faster pace though and could result from a similar effect, but here the fear of the delta variant of the coronavirus is also important to keep in mind."

"The most remarkable number in today’s ESI release was the sharp decline in observed production in manufacturing. With new orders still coming in at a rapid pace, expectations for the months ahead remain strong, but current production has been hampered by supply chain problems and input shortages."

"The ESI indicated that August selling price expectations for goods reached a record high. This confirms expectations of above target inflation for the ECB until at least the end of the year and adds upside risk to the inflation outlook. Tomorrow’s inflation reading for August is already expected to take core inflation much higher – we expect it to increase from 0.7% to 1.4%."

"The bounce back in employment has been very strong in recent months as economies reopened, which has been an encouraging sign for the sustainability of the recovery. Today’s release does reveal a downturn in employment expectations from industry, which begs the question whether this is because of the limited availability of qualified workers or because labour demand has been fulfilled."