EMU Economic Indicators Preview (Week of 23 to 29 November 2009)

• German ifo business climate (November): up
• EMU economic sentiment and industrial confidence (November): up
• PMI manufacturing index EMU (November): up
• German CPI inflation (November): yearly rate back in positive territory
• M3 growth (October): decelerating further

The ifo business climate for Germany will probably have improved in November. The German ZEW economic sentiment has deteriorated, but the US ISM manufacturing index has risen. German yield spreads have widened, because long-term interest rates have gone up, whereas short-term rates have decreased slightly. The DAX has recovered, after a temporary fall. Both the euro and crude oil prices have been fluctuating. The German GfK consumer confidence for December could have remained more or less unchanged.

Italian consumer confidence is likely to have rebounded in November, after having plummeted in October. The other business and consumer climate indicators for the EMU and its member countries will probably have improved in November, albeit at a slower pace than in October. This applies particularly to French and Italian business confidence, French consumer confidence, EMU economic sentiment and industrial confidence, and the Purchasing Managers' Indices for the manufacturing sector in Germany and in the EMU. Belgian business confidence could even have suffered a setback in November, after having rebounded in October.
French consumer spending might have declined in October, after having soared unexpectedly the previous month. EMU industrial new orders will probably have increased in September, like the corresponding German figure.

Q3 German GDP is unlikely to be revised significantly. The detailed breakdown of the components will probably show that changes in inventories, government consumption, construction investment and investment in machinery and equipment all contributed positively to overall GDP growth. However, private consumption and net exports might have dampened growth.

As (short-term) interest rates remain on a very low level, funds are still being shifted into overnight deposits - at the expense of term deposits and other interest bearing components of M3. The decline in loans to the private sector will probably have continued; lending to non-financial corporations in particular is likely to have declined further, whereas loans to private households seem to be levelling off. All in all, we expect the fall in loans to “other euro area residents” (to the private domestic non-bank sector) to have continued. M3 growth is therefore decelerating further, the annual M3 growth rate could have decreased from 1.8 to 0.5% yoy.
The preliminary results for national German CPI for November are due to be released on Thursday. We expect German consumer prices to have declined by 0.2% month-on-month, which would correspond to a positive annual rate of 0.3%. In the coming months, CPI figures are set to remain in positive territory due to base effects.

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