EMU Economic Indicators Preview (Week of 21 Dec 2009 to 3 Jan 2010)

• German CPI inflation (December): increasing, but still low
• M3 growth (November): broadly flat

The German GfK consumer confidence for January could have rebounded, after having deteriorated unexpectedly the previous month. Belgian and Italian business confidence will probably have continued improving in December, albeit at a slower pace than in November. The same applies to Italian consumer confidence.

French consumer spending could have gone up again in November, just like French consumer confidence. EMU industrial new orders will probably have suffered a setback in October, like the corresponding German figure. French Q3 GDP is unlikely to be revised significantly.

In the last week of this year, the preliminary results for national German CPI for December are due to be released. We expect German consumer prices to have increased by 0.6% month-on-month, which would correspond to an annual rate of 0.7%. Due to typical seasonal “Christmas” effects, prices for package tours and accommodation services will have increased markedly mom. Food prices could have risen as well. On the other hand, clothing prices are expected to have gone down. And lower prices for heating oil and gasoline could have dampened the monthly inflation rate by up to 0.1 percentage points. We are expecting inflation rates to remain low next year due to the low level of capacity utilisation and weak aggregate demand.

On 30 December, the ECB will release data on monetary developments in the euro area. The balance sheet growth of euro area banks remains constrained as banks continue to reduce their leverage. More over, corporates have curbed inventories and investments, thereby reducing their financing needs. Borrowing by private households seems to be picking up slightly. Taking advantage of low mortgage rates, households are cautiously returning to the housing market. However, overall loans to the private sector keep declining; “MFI loans to other euro area residents” probably fell by 0.8 % yoy in November. M3 growth will have remained roughly unchanged at 0.3 %. On a monthly basis, money supply is likely to have crumbled again. Within M3, there has been a pronounced shift of funds from interest bearing components of M3 – time deposits in particular – to overnight deposits. This trend probably continued in November, as market interest rates remained extremely low.

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