Economic sentiment rises further but industrial confidence declines

During the third quarter of 2017, the economic sentiment indicator rose further to 117, from 114 in the preceding quarter, thus remaining above its long-term average of 101, the Central Bank's Quarterly Review reported on Tuesday.

Improved sentiment in retail, services and construction sectors as well as among consumers, more than offset weaker confidence in the industrial sector.

Confidence in the retail sector turns positive.

Sentiment in the retail sector rose to 8, from -3 in the second quarter of 2017. Following this increase, sentiment among retailers stood above its long-term average of 1. The rise in confidence was driven by both firms' assessment of past and expected business activity, with both indicators rising sharply during the quarter under review. At the same time, on balance respondents continued to assess stock levels to be above normal, with the share of respondents expressing this view increasing only marginally from the preceding quarter.

Additional survey data indicate that on balance, both selling prices and employment were expected to rise during the three months ahead.

Confidence in the services sector reaches a seven-year high

In the third quarter of 2017, the confidence indicator in services reached 33, up from 27 in the preceding quarter. Consequently, it rose further above its long-term average of 22.

A slight weakening in firms' assessment of past demand was offset by a sharp increase in demand expectations for the following three months.

Respondents' assessment of their business situation also rose strongly.

Additional survey data indicate that a larger net share of respondents reported higher employment in the preceding three months as well as higher employment expectations for the following three months. Also, a larger net share of respondents indicated that they expected prices to increase in the following three months.

Confidence in the construction sector rises further

Sentiment in the construction sector increased significantly during the third quarter of 2017. The indicator reached 17 after turning positive at 11 in the second quarter of 2017. It now stands only marginally below the peak recorded in the second quarter of 2015.

The rise in confidence during the third quarter of 2017 was entirely driven by firms' employment expectations for the subsequent three months. Indeed, these were more optimistic compared with the second quarter of 2017.

Firms' assessment of order books was broadly unchanged after rising above normal in the preceding quarter for the first time in seven quarters.

Additional survey data indicate that in the third quarter of this year, more respondents have on balance, reported positive building activity developments during the preceding three months. Overall the survey suggests that the construction sector has been increasingly meeting rising activity through higher utilisation of labour. Indeed, labour shortages are identified as the main factor limiting production in this sector. Meanwhile, a lower net percentage of firms expected selling prices to rise in the subsequent three months.

Consumer confidence edges up further

The consumer confidence indicator rose to 8 in the third quarter of 2017, from 5 in the preceding three-month period, posting the highest reading since the start of the survey. Almost all components contributed to the increase in consumer sentiment during the third quarter, with savings expectations for the year ahead being the main driver. Compared with the second quarter of 2017, a larger share of respondents expected the general economic situation and their financial situation over the following 12 months to improve. Respondents on balance continued to expect falling unemployment, although the share of respondents holding this view was broadly unchanged compared with the second quarter of 2017.

Additional survey data suggest that the share of consumers intending to reduce major purchases over the subsequent 12 months decreased further. At the same time, on balance, a marginally higher share of consumers expected inflation to rise.

Industrial confidence declines

Confidence in the industrial sector fell to 5 in the third quarter of 2017, from 8 in the preceding quarter, but still remained above its long-term average of -4.

The decline in industrial sentiment during the quarter under review was driven by both firms' production expectations and their assessment of order books, with a net share of respondents assessing order books to be below normal for the season. In contrast to the second quarter, when stocks of finished goods were assessed to be above normal, respondents assessed stocks of finished goods to be below normal in the third quarter.

Meanwhile, additional survey data suggest that fewer respondents expected to increase their labour complement in the subsequent three months. At the same time, on balance, fewer respondents expected to decrease their selling prices.