EZ headline Economic Sentiment Indicator (ESI) rose from 102.3 to 103.9, stronger than expected and corroborated the message from the PMIs that the recovery gained some pace in Q1. On the basis of past form, the ESI is consistent with a pickup in annual GDP growth from 0.9% in Q4 to around 1.5%. The breakdown by sector revealed a relatively strong improvement in the industrial sector, in part driven by export orders. This is a sign that the weakness of the euro is finally having an effect. But the index remained at a low level, suggesting that output in the sector is unlikely to surge. Services sector sentiment also rose and points to annual output growth of around 1.5%. The rise in sentiment was broad based. Germany’s ESI edged up, but perhaps the most encouraging development was the rise in France, given the fall in its composite PMI in March. However, sentiment declined in Greece, showing that the crisis there continued to weigh on activity. According to Capital Economics – “The survey suggests that the euro-zone’s economic recovery has not yet been derailed by the Greek crisis. In fact, it seems to have strengthened slightly so far this year. But the big picture is that growth remains fairly slow, and inflation seems likely to remain very low for a long time.”

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