Confidence in the economy rose across the board in March

Economic commentary by Jakub Seidler, Chief Economist of the CBA
Confidence in the economy rose across the board in March ilustrační foto
Economic confidence had been a pleasant surprise in March, rising relatively broadly, thus offsetting the weaker figures of the past two months. For all monitored segments except industry, it is thus above its one-year average, and for the business sector it is only slightly below last year's level. For households, the development was even more favourable, with confidence growth continuing for the third month in a row, taking consumer confidence to its highest level since October 2021, although it is still noticeably below its 2015-2019 level (Chart 1). This suggests that the poorer sentiment among households and firms at the start of the year is beginning to reverse and could ultimately mean a faster recovery in the domestic economy than was thought at the turn of the year.

Household confidence improved for the third month in a row, with the March improvement driven mainly by the sub-indicator of expected financial situation in the year ahead. The other components were little changed from February, but stronger household optimism about income is an important precondition for a recovery in household consumption. This has so far remained noticeably subdued and, in international comparison, its real decline since the end of 2019 has been the most pronounced among EU countries. Thus, although the household confidence indicator is still below the more favourable levels of 2015-2019 and in this respect is still in a slight "crisis" mode, it has already recovered from its historically worst levels, suggesting that the current situation is no longer perceived so negatively by domestic households.

In the case of businesses, March brought a fairly broad-based increase in confidence, in all monitored segments except construction (Graphs 2 and 3). There, however, confidence had been growing solidly over the previous two months. In all business sectors except industry, March confidence was above its 1-year average. In industry, it is still slightly below, but the drop in industrial confidence early in the year was noticeable and so March's development can be viewed positively in that it was driven by both a more favourable assessment of demand and expected production in the coming months.

Today's figures thus look positive, although household confidence remains below the pre-pandemic levels despite the improvement of the last 3 months, households no longer perceive the current situation as negative and, in particular, anticipate an improvement in their financial situation, which could mean a faster recovery of the so far subdued household consumption. There are also signs of optimism among firms, especially in industry, where the leading indicators so far have not indicated a recovery 0 at least for the first half of the year. Although one-month figures cannot be overestimated, the end of the first quarter of this year suggests moderate optimism in this respect.