Saturday, May 2, 2009

EMU Economic Indicators Preview (Week of 4 to 10 May 2009)

  • German industrial new orders (March): down
  • Output in the German producing sector (March): down
  • German retail sales (March): down
  • ECB: set to cut rates to 1.00%

German industrial new orders and output in the German producing sector will probably have continued decreasing in March, albeit at a slower pace again, because the correlated indicators deteriorated at diminishing rates or even improved. German retail sales are likely to have declined somewhat in March, as both retailers' business assessment and consumer confidence deteriorated.

Following the seasonal pattern, the German trade balance and current account could have improved in March. The Purchasing Managers' Indices for the German and EMU manufacturing sector in April are unlikely to be revised significantly.

Public comments display some dissent among ECB council members about the scope for further rate cuts. However, they do seem to agree about cutting the refinancing rate to 1% at the forthcoming meeting, on May 7. At the April press conference, ECB President Trichet announced a council decision about additional non-standard measures. We do not expect the ECB to engage in Fed-style quantitative easing. Taking into account the ECB's preoccupation with an "exit strategy", the council is likely to favour some form of QE "light": The ECB could lengthen the maturity of refinancing transactions beyond the current 6 months and/or make a longer term commitment to keep rates stable. It is less clear whether the ECB will actually decide to purchase private debt securities. At most, the central bank will start some limited activities in this area.


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