Improvement likely in EC economic indicators for July

The euro area is scheduled to release data on key economic indicators like economic confidence indicators, business climate indicator, and indistrial, service and consumer confidence indicators for July. All these indicators are expected to perform better than previous month. 

Societe Generale expects the European Commission's economic confidence indicator to improve from 103.5 to 104.1 since the EC indicators tend to lag the PMI (and the June survey showed an improvement in both the manufacturing and service sectors). This is higher than the long-term average of 100 but lower than the historical high of around 110.

The bank expects economic confidence continues to be supported by QE, improving credit conditions, low oil prices and the weak euro. Analysts assume that these factors take time to feed through to the real economy, and therefore business confidence has been lagging the recovery. 

The improvement in economic confidence suggests that, in comparison to previous months, business leaders are more confident that the euro area is going through a sustainable recovery. Nevertheless, the confidence level suggests they are not yet convinced that the current recovery will be as strong as previous recoveries.

According to SocGen, "We expect the improvement in consumption growth to start easing going into H2. Regarding the net external channel, disappointing activity in emerging countries such as China suggest global trade is slowing down, which has a bigger impact on net exports than the weaker euro. Lastly, debt burdens and the uncertainty surrounding Greece (particularly within the survey period) continues to weigh on business and economic confidence. The current levels of economic confidence are consistent with our view that economic recovery will be firm in Q3 and Q4 (0.4% QoQ) but slower than previous cyclical recoveries. Hence, we expect improvements in confidence to be capped in the coming months."