During the second quarter of 2016, the economic sentiment indicator increased marginally to 108, from 107 in the first quarter. Therefore, it remained above its long-term average of 100. Sentiment improved slightly across all sectors except in the retail sector, said the Central Bank's Quarterly Review which was published yesterday.

Confidence in the construction sector less negative in the second quarter

Sentiment in the construction sector increased marginally during the second quarter of 2016, breaking the downward path observed since the third quarter of 2015. Indeed, the construction confidence indicator stood at -12, compared with -14 in the preceding quarter.

The rise in confidence during the second quarter of 2016 was driven by an increase in both firms' assessments of order books and employment expectations for the subsequent three months.   

Additional survey data indicate that in the second quarter, on balance, firms expected no selling price inflation in the subsequent three months.

While well above its long-term average of -24, the overall construction confidence indicator has been negative for two consecutive quarters, with firms' assessment of order books being the main contributor to this result.

This, in turn, may reflect year-on-year declines in the number of dwellings sold on the basis of the Property Volume Index published by the National Statistics Office, as well as the recent decline in government investment following the surge in 2014 and 2015.

Industrial confidence increases marginally

Confidence in the industrial sector edged up from -7 in the first quarter to -6 in the second quarter, thereby remaining slightly below its long term average.

Negative sentiment in the second quarter of 2016 was primarily due to persistently weak order books, although firms also continued to report positive stocks of finished goods.

These factors were only partly offset by positive responses about production expectations. The marginal increase in sentiment in industry during the quarter under review was in fact driven entirely by improved production expectations, notably among firms producing intermediate goods, including firms in the semiconductors industry.

Additional survey data suggest that, on average, in the second quarter more respondents expected to increase their labour complement in the subsequent months. At the same time, fewer respondents were expecting to decrease their selling prices.

Confidence in the services sector increases marginally

Confidence among firms in the services sector rose marginally to 26 in the second quarter, from 25 in the preceding quarter. This compares with a long-term average of 21. The rise in confidence was driven by an increase in demand over the preceding three months.

This increase marginally outweighed falls in firms' assessment of their business situation. Demand expectations were unchanged between the two quarters.

Additional survey data indicate that, overall, in the second quarter the share of firms reporting employment growth in the preceding and following three months rose. On the other hand, while selling price expectations remained positive, a smaller net share of respondents expected to charge higher prices.

Consumer confidence remains positive

The consumer confidence indicator stood at 2 in the second quarter, up from 0 in the preceding three-month period. The indicator thus remained well above its long-term average of -21.

Consumer sentiment continued to benefit from a favourable economic situation and labour market conditions. The increase in confidence between the first and second quarter of 2016 was mainly driven by consumers' savings expectations, which turned slightly less negative.

Additional survey data, in fact, suggests that, a smaller share of consumers expressed the intention to make major purchases over the subsequent 12 months. Also, the share of respondents anticipating a fall in unemployment increased.

The survey also indicates that consumers' price expectations, increased compared to the preceding quarter.

Confidence in the retail sector declines for the fourth consecutive quarter

Sentiment in the retail sector fell from 14 in the first quarter to 10 in the second quarter, though it still exceeded its long-term average.

Sentiment in this sector continues to benefit from a favourable assessment regarding past business activity. However, this assessment has become less optimistic in recent quarters. Indeed, a deterioration in respondents' assessment of business activity in the past three months was the key factor behind the recent deterioration in confidence among retailers.

 This also fully explains the deterioration in confidence in the second quarter.

On the other hand, the survey indicates an improvement in expectations for business activity over the subsequent three months.

Similarly, although still contributing negatively to the overall indicator, inventory levels decreased between the first and second quarters of 2016.

Additional survey data indicate that, compared with the first quarter of the year, a smaller share of respondents expected their selling prices to rise in the near term. Also, a greater share of respondents expected their labour component and their order levels to increase in the following three months.