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EMU economic indicators

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The German ifo business climate is expected to have deteriorated in June

Mon, Jun 23 2008, 09:15 GMT
by BHF-Bank Economics Department

BHF-Bank

• The June RBS PMI manufacturing indices for Germany and the EMU could decrease too

• CPI inflation in Germany is likely to have accelerated slightly to 3.2 % yoy in June

• M3 growth will probably have fallen to 10.3% yoy in May

The German ifo business climate index is likely to have deteriorated by at least 0.5% in June, after having soared unexpectedly in May. The US ISM manufacturing index improved recently, but the German ZEW economic sentiment dropped. The euro has depreciated somewhat and the German yield spread has improved, as long-term interest rates have gone up more than short-term ones. However, the crude oil price has soared and the DAX performance index has decreased recently.

In view of the above, the RBS purchasing managers’ index for the German and the EMU manufacturing sector, Belgian and Italian business confidence and French and Italian consumer confidence are all likely to have deteriorated in June, while French business confidence could have remained stable. The GfK German consumer confidence for July might even have recovered slightly, after having plummeted unexpectedly in June. EMU industrial confidence and economic sentiment will probably have fallen in June too, like most of the corresponding national figures.

French consumer spending is expected to have continued decreasing in May, just like French consumer confidence. EMU industrial new orders are expected to have decreased in April, just like the corresponding German figure. Despite the EMU trade balance having improved, the EMU current account is likely to have decreased in April, following its usual seasonal pattern. Q1 French GDP is not likely to be revised significantly.

As from Thursday, the German Länder will start publishing regional CPI data for June. Subsequently, the preliminary results for national German CPI in June will be released – probably on Friday. We expect German consumer prices to have increased by 0.2% mom and 3.2% yoy. The monthly inflation will have been mainly due to further price increases for gasoline and heating oil. These products are likely to have pushed inflation up by about 0.2 percentage points. Prices for package tours and accommodation services could have had a slightly positive impact on monthly inflation as well. On the other hand, clothing is likely to have had a dampening effect and food prices could have remained more or less stable.

M3 rose strongly in April, as more than €100bn of fresh funds were channeled into time deposits within one month. Against this background, M3 growth accelerated from 10.3 to 10.6 % yoy. Over the past twelve months, funds flowing into short term deposits with an agreed maturity of less than 2 years accounted for nearly 4/5 of the overall increase of M3, mainly as a result of highly attractive short term interest rates and heightened economic uncertainty. We expect the overall tendency – strong growth of time deposits – to persist for the time being. However, it is not likely to have risen as much in May as in April, when the increase was unusually high. Therefore, M3 growth is likely to have slowed to 10.3%. Credit growth has been strong generally, as non-financial corporations and “other financial institutions” draw on bank loans to fulfill their funding needs. In contrast, funding of households, especially for house purchases, has been drying up. Overall, we expect MFI loans to the domestic private sector to have grown by 10.4% in May, down from 10.6% in April.

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Published on  Mon, Jun 30 2008, 11:12 GMT