EMU Economic Indicators Preview

(Week of 5 to 11 January 2009)

• EMU inflation flash estimate (December): down to 1.6% yoy
• EMU industrial confidence and economic sentiment (December): down
• German adjusted unemployment (December): beginning to rise
• German industrial new orders (October): down
• Output in the German producing sector (October): down
• German retail sales (October): up slightly

German industrial new orders and output in the German producing sector probably have continued decreasing in November because all correlated climate indicators deteriorated. However, German retail sales might have recovered slightly in November, after they had plummeted in October and even though retailers’ business assessment and consumer confidence deteriorated. Following the seasonal pattern, the German trade balance could have remained more or less at the same level in November, whereas the German current account might even improve.

French industrial production might have recovered slightly in November, after it had plummeted in October, despite the fact that all of the correlated indicators except French consumer spending dropped. French consumer confidence will probably suffer a setback in December, after it had improved unexpectedly in November. EMU economic sentiment and EMU industrial confidence are also likely to have declined in December. We are not expecting EWU Q3 GDP to be revised significantly.

Despite the German economy being in a recession since Q2, adjusted unemployment continued to develop favouribly in the previous months. However, the period of declining unemployment is likely to have ended, and we expect adjusted unemployment to have risen by 10 000 in December. The Labour Agency will also publish the figures for 2008: Unemployment is likely to have fallen sharply by about 510k to 3.260mn, with the average unemployment rate declining from 9.0% to 7.8% - the lowest level since 1993. But as the German growth rate could be as low as -3% next year, unadjusted unemployment, which was below 3 million in October and November, could jump over 4 million in the winter of 2009/2010 at the latest.

The harmonized EMU unemployment rate could have risen at least to 7.8% in November, as the development in many other eurozone countries is much less favourable than in Germany. For example, the Spanish harmonized unemployment rate jumped from 12.1 to 12.8% in October.

The Eurostat flash estimate is likely to show that euro area inflation has decreased further to 1.6% yoy in December. Hence, the inflation rate would be below the threshold of 2 % for the first time since August 2007. This would correspond with a monthly decrease in HICP of 0.1 % in unadjusted terms.

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