The Economy in People’s Minds: are EU Countries Connected?

This paper analyzes the importance of the international environment in economic perceptions’ formation and tries to unveil its synchronization and agglomerative patterns by statistically examining the Economic Sentiment indicator for 23 EU countries. It is found that a very significant part of the fluctuations in economic perceptions are linked to the international environment, thus exhibiting a strong co-movement across countries that appears to be growing. Additionally, the data indicates a clear division in terms of sentiment co-movement between Western and Eastern European countries, but this separation seems to vanish around the first decade of this century. Results also show that perceptions, for a significant number of nations, including all major countries, have a unique strong common international component, and countries tend to clump into one very dominant cluster that by the end of the sample seems to stand alone, thus suggesting that in recent years we are already witnessing the presence of a single European economic sentiment.