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EMU economic indicators

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German retail sales (September): Rebounding

Mon, Oct 26 2009, 05:56 GMT
by BHF-Bank Economics Department

BHF-Bank

• M3 growth (September): decelerating further

• German CPI inflation (October): still slightly negative

• EMU industrial confidence and economic sentiment (October): up

• German adjusted unemployment (September): rising for the first time since June

• EMU inflation flash estimate (October): prices still falling

• German retail sales (September): rebounding

The German GfK consumer confidence for November will probably only have stabilised, after having soared previously. However, French and Italian consumer confidence are likely to have continued improving in October, and Italian business confidence could have rebounded. The same goes for EMU economic sentiment and industrial confidence in October, as the corresponding national figures have sent positive signals so far.

German retail sales are likely to have rebounded in September, as both retailers’ business assessment and consumer confidence improved.

Two opposing forces are affecting bank balance sheets at the moment. On the one hand, (short-term) interest rates are very low. As there is little incentive for investors or depositors to tie up their money, funds are shifted into overnight deposits – at the expense of term deposits and other interest bearing components of M3. On the other hand, the deleveraging process is continuing. To improve capital ratios, banks are trying to reduce their holdings of risky assets or, at least, trying to avoid giving additional loans. This trend is being reinforced by the perceived increase in credit risk. In our view, the latter is the dominant factor driving monetary developments. We expect loans to “other euro area residents” (to the private domestic non-bank sector) to have declined on an annual basis – for the first time since the start of EMU. The rate is likely to have fallen to about –0.5% yoy in September, down from 0.1% in August. M3 growth is decelerating further. The annual M3 growth rate could have decreased from 2.5 to 1.9% yoy.

The preliminary results for national German CPI for October are due to be released on Wednesday. We expect German consumer prices to have remained flat month-on-month; the annual rate would then be slightly negative. Prices for gasoline and heating oil were higher than in September, which is likely to have spurred inflation by up to 0.1 percentage points. Due to typical seasonal effects, prices for package tours and accommodation services are expected to have fallen again, whereas clothing prices could have gone up. Food prices could have continued their downward trend.

The Eurostat flash estimate is likely to show that euro area inflation remained in negative territory: We expect an inflation rate of –0.2% yoy in October. This would correspond with a monthly increase in HICP of 0.2 % in unadjusted terms.

Despite the severe recession in 2008 and early 2009, German adjusted unemployment fell in all three summer months, mainly due to the extensive use of short-time work schemes and statistical changes.
Both factors are still dampening the underlying upward trend, but we expect adjusted unemployment to have gone up by about 15k in September, as a lot of the short-time work contracts will not have been prolonged due to the plunge in capacity utilisation.

The harmonized EMU unemployment rate has been rising since April 2008, by a total of 2.4 percentage points to 9.6% so far. The regional differences are striking: while the German rate was only 0.3 points higher than in March 2008, the Spanish rate jumped by 9.5 points in the same period. We expect the upward trend in the EMU unemployment rate to continue for quite some time to come; the rate could have risen by 0.1 percentage points to 9.7% in September.

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Published on  Mon, Oct 26 2009, 12:15 GMT