During the first quarter of 2016, the economic sentiment indicator fell slightly, standing at 106 in March, down from 108 in December 2015. Still, it remained above its long-term average of 100.This was revealed by the Business and Consumer surveys carried in the Central Bank's Quarterly Review which was published yesterday.
Lower confidence in the construction and industrial sectors outweighed increases in retail and services, leading to a fall in the overall sentiment indicator. Consumer confidence remained stable when compared with three months earlier.
Going into the second quarter, the ESI rose again, reaching 109 in April. All components contributed to this pickup, except for consumer confidence, which fell marginally.
Confidence in the construction sector decreases further
Sentiment in the construction sector fell during the first quarter of 2016, continuing the downward trend since August 2015. Confidence in this sector, which was positive, on average, during 2015, turned negative in November 2015 and remained negative thereafter. In the first three months of the year, the indicator fell further, standing at -22 in March 2016, compared with -2 three months earlier.
Despite this fall, March's reading still stood marginally above the indicator's long-term average of -24. Going into the second quarter, sentiment in the construction sector increased, though the balance of replies was still negative at -13.
The reduction in confidence during the first quarter of 2016 was driven by a fall in firms' assessment of their order books and in their employment expectations for the subsequent three months, with a negative balance of replies in each case.
Employment expectations fell below zero in January, remaining negative for the first four months of the year.
Additional survey data for March also indicate that, compared with December, a greater share of respondents anticipated lower selling prices for the subsequent three months, which coincides with a reported fall in building activity over the preceding three months.
Industrial confidence falls before edging up in April
Confidence in the industrial sector edged down from -1 in December 2015 to -9 in March. After having turned negative in November 2015, this indicator fell below the long-run average of -5 in February 2016.
More recent data show that the industrial confidence indicator increased to -4 in April, exceeding the long-term average marginally.
Negative sentiment levels in the first quarter of 2016 were primarily due to persistently weak order books. At the end of the quarter, on balance, firms also reported higher stocks of finished goods, with a negative impact on the overall indicator.
These factors were partly offset by positive responses about production expectations throughout the quarter.
Furthermore, all subcomponents of the indicator contributed to the overall fall observed during the first quarter. Between December and March, production expectations and order-book levels fell, whereas stock levels increased.
From a sectoral perspective, during the first quarter a significant fall in confidence was registered among firms producing intermediate goods. In turn, this was largely driven by a reduction in production expectations. Confidence also fell in firms producing investment goods, though it remained positive. In contrast, confidence rose among firms producing consumer goods, notably durables, and there was also an improvement within the food and beverages industry.
Additional survey data suggest that, on average, in March more respondents were expecting to increase their selling price in the following three months compared with December. On the other hand, although the balance of replies remained positive, fewer firms were expecting to increase their labour complement in the subsequent months.
Confidence in the retail sector increases
In contrast, sentiment in the retail sector, which had fallen sharply during the previous quarter, recovered. It increased from 1 in December 2015 to 16 in March, thus exceeding the long-term average. Data for April show a further increase, with the indicator edging up to 17 during this month.
The positive sentiment in March was driven by a favourable balance of replies regarding business activity, which was dampened by an above-average level of stocks of goods.
The rebound in confidence during the first quarter of 2016 was driven by all sub-components of the indicator. More specifically, it was influenced by an increase in business activity over the previous three months. Projected business activity also increased, but to a lesser extent. Similarly, although still contributing negatively to the overall indicator, inventory levels decreased between December and March.
Additional survey data for March indicate that, compared with December, a greater share of respondents expected their labour component to increase in the following three months. On the other hand, while remaining positive, the balance of replies fell as regards anticipated order levels and firms' selling prices.
Confidence in the services sector increases
Confidence among firms in the services sector rose to 27 in March, from 21 in December 2015. This increase follows a drop between October and December. The indicator remained above its long-term average of 21 throughout the first quarter of 2016 and edged up further in April, reaching 29.
All three sub-components of the services confidence indicator increased in March when compared with three months earlier. Respondents' assessment of demand increased by 7 points to 29, while their assessment of both the business situation over the previous three months and of demand over the subsequent three months improved by 5 points to 28 and 23, respectively.
Additional survey data indicate that, overall, in March a larger share of respondents planned to increase their labour complement in the subsequent months when compared with December. Similarly, the share of firms reporting employment growth in the preceding three months also increased. Meanwhile, a larger share of respondents expected selling prices to rise.
Consumer confidence remains stable
Consumer sentiment was stable during the first quarter of 2016, with the indicator standing at 0 in March, unchanged from three months earlier. The indicator thus remained well above its long-term average of -22. Going into the second quarter, the indicator edged down to -1 in April.
Three sub-components of the sentiment indicator declined in March when compared with December 2015. On average, consumers assessed the general economic prospects and their own financial situation over the subsequent 12 months marginally less favourably compared with December. Consumers' savings expectations over the subsequent 12 months also fell, becoming more negative. In contrast, a larger share of respondents expected unemployment to fall in the following year.
All sub-components of the sentiment indicator performed better than their respective long-term averages. In addition, in March a smaller share of consumers expressed the intention to make major purchases over the subsequent 12 months.
On the other hand, consumers' price expectations increased from the level in December; on balance, respondents expected prices to increase slightly over the subsequent 12 months.