Economic Sentiment Perceptions During COVID-19 Pandemic – A European Cross-Country Impact Assessment

An increasing body of recent literature focuses on how stock market investor sentiment fluctuates during the pandemic. However, a topic insufficiently addressed is related to investigating the changes occurred in the economic sentiment and expectations during COVID-19 pandemic, as a broader concept than stock market investors' perception and expectations. The paper investigates the impact of COVID-19 pandemic on the economic sentiment pattern in European Union countries, through two complementary research approaches: an exploratory data analysis technique represented by a hierarchic agglomerative clustering and a probabilistic GLM panel regression framework. Several official survey-based economic sentiment indices (Economic sentiment indicator, Employment expectations index, Composite leading indicator, Business confidence index, Consumer confidence index) are included in the empirical analysis to comprehensively reflect businesses and consumers’ current economic and employment perceptions and expectations on future developments. The clustering solution indicates increased heterogeneity among European countries and no stable group. The sentiment related to the employment consequences of the COVID-19 crisis records the sharpest fluctuation and is reflected in countries’ classification. The panel regression findings reveal that the number of new deaths is the most influential COVID-19 proxy variable, as it determines the evolution of most sentiment indicators.