Business sentiment improves slightly except in retail

During the second quarter of 2016, the economic sentiment indicator increased marginally to 108, from 107 in the first quarter. Therefore, it remained above its long-term average of 100. Sentiment improved slightly across all sectors except in the retail sector, said the Central Bank’s Quarterly Review which was published yesterday.

Confidence in the construction sector less negative in the second quarter

Sentiment in the construction sector increased marginally during the second quarter of 2016, breaking the downward path observed since the third quarter of 2015. Indeed, the construction confidence indicator stood at -12, compared with -14 in the preceding quarter.

The rise in confidence during the second quarter of 2016 was driven by an increase in both firms’ assessments of order books and employment expectations for the subsequent three months.

Additional survey data indicate that in the second quarter, on balance, firms expected no selling price inflation in the subsequent three months.

While well above its long-term average of -24, the overall construction confidence indicator has been negative for two consecutive quarters, with firms’ assessment of order books being the main contributor to this result.

This, in turn, may reflect yearon-year declines in the number of dwellings sold on the basis of the Property Volume Index published by the National Statistics Office, as well as the recent decline in government investment following the surge in 2014 and 2015.

Industrial confidence increases marginally

Confidence in the industrial sector edged up from -7 in the first quarter to -6 in the second quarter, thereby remaining slightly below its long term average.

Negative sentiment in the second quarter of 2016 was primarily due to persistently weak order books, although firms also con- tinued to report positive stocks of finished goods.

These factors were only partly offset by positive responses about production expectations. The marginal increase in sentiment in industry during the quarter under review was in fact driven entirely by improved production expectations, notably among firms producing intermediate goods, including firms in the semiconductors industry.

Additional survey data suggest that, on average, in the second quarter more respondents expected to increase their labour complement in the subsequent months. At the same time, fewer respondents were expecting to decrease their selling prices.