EMU Economic Indicators Preview

(Week of 4 to 10 Jan 2010)

• EMU inflation flash estimate (December): higher inflation
• EMU economic sentiment and industrial confidence (December): up
• German adjusted unemployment (December): cold weather could have had a negative impact
• German industrial new orders (November): rebound
• Output in the German producing sector (November): rebound
• German retail sales (November): slightly up

The Eurostat flash estimate is likely to show that euro area inflation increased but is still quite weak. We expect an inflation rate of 0.9% yoy in December. This would correspond with a monthly HICP increase of 0.3 % in unadjusted terms.

French consumer confidence will probably have continued improving in December, albeit at a slower pace than in November. The same applies to EMU economic sentiment and industrial confidence in December. The Purchasing Managers’ Indices for the German and EMU manufacturing sector in December are unlikely to be revised significantly. The same applies to Q3 EMU GDP. EMU industrial new orders will probably have suffered a setback in October, like the corresponding German figure.

German industrial new orders and output in the German producing sector are expected to have rebounded in November, as most of the correlated indicators improved. German retail sales are likely to have increased slightly in November. German consumer confidence deteriorated, but retailers’ business assessment rebounded. The German trade balance and current account could have suffered setbacks in November.

Despite the severe recession in 2008 and early 2009, German adjusted unemployment has fallen every month since July, mainly due to the extensive use of short-time work schemes and statistical changes. Both factors are still dampening the underlying upward trend, but despite the extension of short-time working schemes into next year, we expect more and more firms to cut jobs because of low capacity utilisation. While the fall in adjusted unemployment by 7k in November was partly due to mild temperatures, the cold and snowy weather could have had a negative impact in December. We expect adjusted unemployment to have gone up by 30k in December, raising the unemployment rate slightly to 8.2%. For all of 2009, average unemployment is likely to have risen by about 160k, from 3.27m to 3.43m. The average unemployment rate will have increased from 7.8% to 8.1%. However, relative to the sharpness of the economic contraction, the rise in unemployment appears rather moderate.

The harmonized EMU unemployment rate has been rising since April 2008, by a total of 2.6 percentage points to 9.8% so far. The regional differences are striking: while the German rate was unchanged from March 2008, the Spanish rate jumped by almost 10 percentage points in the same period. We expect the upward trend in the EMU unemployment rate to continue for quite some time to come; but as the rate in Germany has remained stable, the harmonised EMU rate might only have risen by 0.1 percentage points to 9.9% in November.

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