European sentiment indicator as an economic indicator

I don’t put a lot of stock into economic sentiment surveys but the time series of this particular survey, the European sentiment indicator, caught my eye. It suggests a recovery in Europe is almost here.

Earlier today I had seen news that Sweden’s economy turned down unexpectedly and Ambrose Evans-Pritchard was on the case with a negative spin on the implications. And while I am sympathetic to his arguments – especially given the house price inflation and household debt problems in Sweden – I have been leaning the other way for a couple of months now. I believe Europe is on the cusp of a (weak) recovery in the periphery and this survey certainly goes in that direction. What I thought interesting was that in the past the survey has moved discretely in one direction for longer periods without a lot of major reversals. We are in month three of the upswing now. So let’s see how long this trend holds.

Also note that Spain is nearly out of recession. A I wrote in the links earlier today, “recession is only a period of diminishing economic growth. It means a shrinking base. Recovery doesn’t mean good times are here again. It just means that the base has stopped shrinking (at least temporarily).” How long this economic revival lasts is the question. I think it will last for a while. Again, as in the US in 2009, I expect to be an outlier on this call but I’m still making it.