In December, industrial production surprised on the downside, falling twice as much as expected. Industrial production plunged 2.0% M/M and the November outcome was downwardly revised from -0.6% M/M to 1.3% M/M. The manufacturing sector was hardest hit (-2.3% M/M), due to a 7.2% M/M drop in motor vehicle, parts, but also mining (-1.6% M/M) and utilities (-0.1% M/M) declined. Looking ahead, industrial production is forecasted to remain weak in January due to plant shutdowns in the auto sector.
In December, CPI dropped by 0.7% M/M, while a decline of 0.9% M/M was expected. Consumer prices rose 0.1% Y/Y compared to December 2007, the slowest pace since August 1955. Core CPI, which excludes food and energy, rose 1.8% Y/Y (from 2.0% Y/Y). Again, most of the decline was due to energy related products, but also other commodities dropped. In the coming months, inflation is expected to decline further which will stoke fears of deflation.
In January, University of Michigan consumer confidence showed an unexpected improvement. The headline index rose from 60.1 to 59. against the expectation of 59.0. Economic conditions deteriorated marginally (69.2 from 69.5), while the economic outlook improved (57.2 from 54.0). Although the index showed a slight improvement, it is too early to conclude that consumers are becoming more optimistic.
EMU: Trade deficit widens as exports weaken
The euro zone trade deficit widened from a downwardly revised -2.1B to -4.9B in November, in line with the consensus estimate (-4.8B). The widening deficit was due to 4.7% M/M decline in exports, while imports fell 2.5% M/M. Exports declined at the fastest pace in more than eight years. The deficit may continue to widen in the coming months as demand is expected to remain weak in the coming months.
