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Eurozone economic sentiment beats expectations in May

The eurozone's economic sentiment slipped in May but by less than was expected, suggesting that the overall weakness seen in the first quarter was temporary.

The European Commission's sentiment index came in at 112.5 in May, down 0.2 point from 112.7 in April, but above Econoday's consensus estimate of 112.1. But the number still represented the index's fifth straight month of decline.

The decline was due to decreases in industry and services confidence that were only partly offset by increases in the retail trade and construction sectors.

Economic sentiment weakened in France, Spain and Italy, and was broadly unchanged in Germany.

Services confidence was down 0.4 point due to a decrease in managers' assessments of past demand. Retail trade and construction confidence gained 1.4 points and 2.4 points, respectively.

"After falling only slightly in May, the EC's measure of economic sentiment provides some reassurance that the softness in activity in Q1 does not mark the start of a sharp slowdown," said Jessica Hinds, European economist at Capital Economics.

The eurozone's gross domestic product growth slowed to 2.5% in the first quarter as temporary factors such as bad weather and labor strife weighed on the economy.

A rebound in Germany's underlying inflation and a rise in eurozone consumers' 12-month inflation expectations suggest that eurozone GDP growth will pick up, Hinds added.

However, the political turmoil in Italy could add to economic headwinds.

"The months ahead are likely to see uncertainty continue as the Italian political crisis could drag on during the summer," said ING senior economist Bert Colijn in a note.

"[M]arkets have clearly woken up from the euro-risk lull that started after the Macron presidential election victory in France last year," Colijn added.

According to a separate statistical release, the business climate indicator for the euro area rose to 1.45 in May from 1.39 in April as managers' appraisals of their overall and export order books improved markedly.

The euro was up 0.49% to $1.1597 as of 5:43 a.m. ET.