Consumer confidence sours economic climate in May

Greece’s economic climate worsened in May, mainly due to a new relapse in consumer confidence which had given timid signs of a recovery in the last two months, the Foundation for Economic and Industrial Research (IOBE) said in a report yesterday. Greece’s Economic Climate Index (ECI) has remained above average eurozone levels since January 2004 and, despite a sizable decline in May, it is still the third highest. The index declined in most eurozone members, especially in those where it was above average levels, such as Denmark, Greece, Belgium and Austria. This trend, according to IOBE, may be partly attributed to the inclusion, for the first time, of the services sub-index in the compilation of the index and for the seasonal adjustment of data. Economic climate indices are calculated on the basis of particular sub-indices of expectations in industry, construction, retail commerce, services and consumer confidence. The seasonally adjusted ECI, which takes the 1990-2003 average as a base of 100, fell to 110.6 points from 115.4 points in April. Expectations in industry, measured in terms of the outlook for production and estimates of inventories and total demand, declined slightly to 110.0 points from 110.3 points in April – (base 100 for 1990). A positive contribution from improved forecasts regarding future production levels was offset by more restrained projections of order levels and the prospect of rising inventories. Most firms expect to maintain stable prices, and 85 percent of them consider that plant capacity is adequate in relation to expected sales. Business expectations in the construction sector, based on the progress of scheduled projects and employment forecasts, continued to decline in May, falling to 111.9 points from 116.8 in April (base 100 for 1990), influenced by more modest projections regarding employment levels. The continued decline is certainly related to the completion of Olympic Games projects, which are gradually losing their propelling force. Expectations in the retail sector, measured on the basis of forecasts for sales, inventory levels and business activity, improved to 119.6 points from 118.3 in April (base 100 for 1993), as a result of positive estimates regarding current sales levels and a prospect of liquidation of inventories. However, forecasts concerning sales levels in coming months were more moderate. The services sector expectations index, based on views regarding the business climate and demand forecasts, improved further to 102.5 points from 100.5 in April; the index of business expectations among travel agencies surged to 97.4 points in May from 85.5 points in April. The 10 new EU members were included in last month’s ECI for the first time; the EU25 average stood at 103.3 points, continuing the improvement from 102.1 points for the EU15 in April, reflecting an improvement of climate in industry and services.