In the first quarter of 2015, confidence improved strongly among service providers and retailers, and more modestly among manufacturing firms, consumers and the construction sector, the Central Bank’s Quarterly Review reported.

As a result, the economic sentiment indicator extended its upward trend, rising to 116 in March from 111 in December 2014. The ESI therefore remained above its long-term average of 101.

Industrial confidence slightly improves

After moving briefly into negative territory in the last quarter of 2014, industrial confidence turned positive again during the first quarter of 2015. In March it stood at three, up from nil in December 2014, and above its long-term average of -5. The pick-up in industrial confidence reflected more favourable views on order books and stock levels.

Between December and March, firms’ assessment of order books improved. Moreover, whereas in December stocks were on balance assessed to be increasing marginally, in March a small net percentage of respondents reported that they had declined.

On the other hand, production expectations slightly deteriorated as the number of respondents expecting a rise in production over the subsequent three months decreased.

All three components of the industrial sentiment indicator were more favourable than the respective long-term average.

From a sectoral perspective, between December and March confidence increased most among manufacturers of paper & paper products and computer, electronic & optical products, largely as a result of improvements in production expectations.

On the other hand, confidence among producers of electrical equipment, firms involved in printing and reproduction of recorded material and those in the chemical sector declined and turned negative in March.

The decline in confidence among the first two sectors is largely the result of significant deterioration in production expectations.

Decreased confidence among producers of chemical products was mostly driven by lower order book levels.

According to additional information collected through the survey, on balance respondents were expecting to expand their workforce in the months ahead. In March the proportion of respondents anticipating an increase in their labour complement was broadly stable compared with December. Moreover, the proportion of respondents expecting lower prices for their output in the subsequent months increased.

Confidence in the construction sector improves

Confidence in the construction sector fluctuated widely during the first quarter of 2015. The construction confidence indicator ended the quarter at -6 in March, up slightly from -7 three months earlier. Although still in negative territory, the indicator remained well above its long-term average and turned positive in the following two months.

The marginal improvement in confidence in this sector between December and March was driven by respondents’ improved employment expectations, which offset a more pessimistic assessment of order books.

Additional survey information indicates that a higher share of respondents held positive expectations regarding selling prices for the subsequent three months.

Services sector is more upbeat

The confidence indicator in the services industry rose sharply to 32 in March from 23 in December, moving further above its long-term average of 20. All sub-components of the services confidence indicator rose in March compared with December.

Respondents’ assessments of demand and of the business situation over the previous three months improved significantly. A higher share of respondents also expected the increase in demand to be sustained over the subsequent three months. All sub-components of the services confidence indicator stood above their long-term averages.

At a sectoral level, confidence improved most among firms involved in real estate activities, transport and computer programming. In the first two sectors, higher confidence was mostly driven by improvements in the business situation. On the other hand, a more positive assessment of recent demand contributed to improving confidence among firms providing computer programming services.

In contrast, confidence fell most among firms involved in audio-visual productions, mostly as a result of worsening demand in the previous three months, and among legal and accounting firms due to expectations of a reduction in demand.

Other information suggests that, on balance, respondents in the services sector still expected to increase their labour complement. However, the share of respondents expecting to create jobs slightly decreased compared with December. Meanwhile, selling price expectations improved.

 

Consumer confidence improves marginally

Consumer confidence improved modestly in March when compared with December but remained in negative territory. The indicator stood at -2 in March compared to -4 three months earlier. Nonetheless, the indicator remained well above its long-term average of -23.

The improvement in consumer confidence was driven considerably by more positive labour market expectations, as a higher share of respondents believed that unemployment over the subsequent 12 months would decrease. Consumers also assessed their own financial situation over the subsequent 12 months more favourably compared with December.

Furthermore, a higher share of respondents planned to save in the subsequent 12 months. Respondents’ assessment of the general economic situation on balance remained positive and broadly unchanged compared with three months earlier.

All sub-components, except for future unemployment expectations, stood above their respective long-term averages. At the same time, additional survey information suggests that consumers were also more predisposed than in December to make major purchases over the following year.

Information on consumer price expectations shows that in March a smaller number of respondents expected prices to increase over the subsequent 12 months.

 

The improvement in economic sentiment extends into the second quarter

Data for the first two months of the second quarter indicate that the ESI rose further, reaching 118 in May. The increase was mostly driven by a strong improvement in confidence in the construction sector. Consumer confidence also edged up slightly and turned positive.

 In contrast, sentiment in industry and services somewhat declined, although it remained more favourable than in December.