Sunday, July 26, 2009

EMU Economic Indicators Preview (Week of 27 July to 2 August 2009)

  • M3 growth (Jun): decelerating further
  • German CPI inflation (July): slightly negative
  • German adjusted unemployment (July): sharper rise
  • EMU industrial confidence and economic sentiment (July): up
  • EMU inflation flash estimate (July): falling prices

The deleveraging process continues and since credit has started to contract, we expect money holdings to follow that downward trend. Moreover, historically low short-term interest rates reduce the attractiveness of term deposits and other marketable instruments. We expect M3 growth to have fallen to 3.0% in June, down from 3.7%. The growth of loans to the private non-bank sector could have declined from 1.8% to 1.2% yoy in June.

The preliminary results for national German CPI for July are due to be released on Wednesday at the latest. We expect German consumer prices to have gone up by 0.3 % mom; the annual rate would then decrease into negative territory to -0.2 %. The monthly inflation will have been due mainly to significant price increases for package tours and accommodation services because of the summer holidays. On the other hand, price decreases for gasoline and heating oil are likely to have dampened inflation by about 0.2 percentage points. Clothing has probably had a dampening effect as well and food prices could have fallen again. Decreasing gas prices and increasing electricity prices could have more or less cancelled each other out. Year-on-year inflation is expected to stay in negative territory for some months.

The Eurostat flash estimate is likely to show that euro area inflation has become even more negative in July: We expect a rate of -0.4 % yoy. This would correspond with a monthly decrease in HICP of -0.4 % in unadjusted terms. Inflation rates yoy could remain negative until autumn this year, mainly due to energy price related base effects. But weak aggregate demand is having a dampening effect on consumer prices as well.

Due to the severity of the current recession, the increases in adjusted German unemployment are likely to have accelerated in July. Nevertheless, the extensive use of short-time work schemes and statistical changes are still dampening the upward trend.

The German GfK consumer confidence for August as well as the Italian business and consumer confidence and the EMU economic sentiment and industrial confidence in July probably have continued improving, just like the other national climate indicators.


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