The improvement in sentiment is underpinned by a stronger consumer with greater purchase plans (also supported by higher real wages in Q2), which has improved retail sentiment (see Chart 1). Not so in services, however, where confidence has fallen, albeit from still above-average levels. Sentiment in construction improved, suggesting continued expansion. Similarly, confidence in industry has improved, but remains below the long-term average, where worse sentiment in Germany and a stronger krona dampen September's positive signal for me.
Price expectations are neutral for the current outlook for consumer price growth slightly above the CNB's 2% target, but more associated with continued more subdued price pressures in services. September did not change the continued slightly negative signal for the labor market, but there is a notable split between stronger expectations in construction and trade on the one hand and weakening in services and still weak in industry on the other.
If September's improved sentiment is sustained and reflected in the monthly data, then this would indicate a chance to maintain the solid GDP growth momentum. September's stronger sentiment improved on the previous three months and is slightly above the long-term average. It thus represents a boost for the monthly economic data, which rather disappointed in July - either by a slow recovery in the case of industry or retail trade, or by weakening momentum in services. The July data also represented the limit for a repeat of the decent GDP growth in the third quarter, following 0.5% quarter-on-quarter growth in the second quarter. Thus, September sentiment may represent a positive signal compared to July and for our forecast of 2.1% annual GDP growth this year.
Industrial sentiment rebounded in September on the back of more positive expectations, for the time being despite a rather weaker assessment of demand. The improvement was a positive surprise in view of the weaker September purchasing managers' index in Germany (following the deterioration in export expectations in August) and in the euro area, or in view of the appreciation of the koruna.
Price expectations have changed slightly, but maintain a neutral signal for consumer price inflation, including a neutral signal for core services inflation, which despite
slightly stronger growth in August is showing more moderate momentum than in the first half of the year
.
