EMU Economic Indicators Preview

(Week of 29 September to 5 October 2008)

• EMU industrial confidence and economic sentiment (September): down
• German adjusted unemployment (September): only a slight decline
• German retail sales (August): decreasing further
• EMU inflation (September) flash estimate: decline to 3.7 % yoy
• ECB refi rate: reduction because of the financial markets crisis not to be ruled out

According to the national climate indicators already available, economic sentiment and industrial confidence in the EMU are likely to have plummeted further in September. The turmoil in financial markets has intensified recently and is weighing on consumers and companies. We do not expect any significant revisions for the final RBS-PMI indices for September.

German adjusted unemployment fell unexpectedly by 40k in August, thus slightly exceeding the monthly average decline for 2008 so far. However, the favourable labour market development is coming to an end, because the German economy could already be in a technical recession. The intensification of the financial market crisis in particular is posing risks for employment levels. But as the labour market is a lagging indicator, German adjusted unemployment might have declined again in September, albeit only by 15k. The adjusted unemployment rate could have remained at 7.6%. The harmonized EMU unemployment rate could have been 7.3% again in August, due to the improvement in Germany.

The Eurostat flash estimate is likely to show that euro area inflation has decreased to 3.7% yoy in September. This would correspond with a monthly rate of 0.2% in unadjusted terms, although slightly lower prices for heating oil and gasoline probably dampened monthly inflation.

German retail sales could have continued their negative trend in August, but at a slower pace. Therefore, we expect them to have decreased further by about 0.5% mom as retailers' business assessment and consumer confidence deteriorated again in the reporting month.

It cannot be ruled out that the ECB council will be forced to lower the refinancing rate on Thursday, in reaction to the financial market crisis having reached a new dimension, with several European institutions now also in trouble.

BHF-BANK
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