Sunday, August 30, 2009

EMU Economic Indicators Preview (Week of 31 August to 6 September 2009)

  • German retail sales (July): stabilised at least
  • EMU inflation flash estimate (August): prices still falling
  • German adjusted unemployment (Aug): short-time work limiting rise again
  • ECB Council: no change in policy

German retail sales could have stabilised at least in July, as retailers' business assessment rebounded and consumer confidence rose. The Italian business confidence will probably have continued improving in August.

The Purchasing Managers' Indices for the German and EMU manufacturing sector in August are unlikely to be revised significantly. The same goes for EMU GDP in Q2.

Despite the severe recession, German adjusted unemployment surprisingly fell by 6k in July. The extensive use of short-time work schemes and statistical changes are still dampening the upward trend. We thus forecast that adjusted unemployment will have risen by a mere 5k in August. However, from autumn on, we expect unemployment to go up noticeably, as cost pressures will force companies to dismiss employees rather than to prolong their short-time work contracts.

Within a year, the harmonized EMU unemployment rate has risen from 7.5% to 9.4% by June. The regional differences are striking: while the German rate increased by a mere 0.4 percentage points, the Spanish rate jumped from 11.0% to 18.1% in the same period. We expect the upward trend in the EMU unemployment rate to continue for quite some time to come; the rate could have risen by 0.2 percentage points to 9.6% in July.

The Eurostat flash estimate is likely to show that euro area inflation became less negative in August. The inflation rate rose to -0.2% yoy, from -0.7% in July. This would correspond with a monthly increase in HICP of 0.3 % in unadjusted terms. The increase mainly reflects higher energy prices. Moreover, the base effect from falling energy prices in August 2008 is pushing the annual inflation rate higher.

The ECB Council is holding its regular monthly meeting on Thursday. The interest rate decision will be announced at 13:45hrs, the press conference is scheduled for 14:30hrs. Over the last few weeks, several ECB representatives have warned against excessive optimism. In addition, the ECB report on EU Banking Sector Stability underlines the substantial risk. We therefore expect the ECB policy stance to remain unchanged. The refinancing rate likely to be kept at 1.0%. However, the ECB staff projections will probably be revised higher. As growth in Q2 turned out to be better than expected and economic activity in Q3 seem to be more or less stable, growth forecasts for 2009 and 2010 are likely to be upgraded.


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