In January, the German ZEW index improved for a second straight month. The headline index rose from -53.8 to -21.6, while the consensus was looking for only a marginal increase (to -49.4). The details show that not only the expectations index rose at the start of the new year, but also the current situation index picked up
(from 26.8 to 28.4), posting its first increase in six months. Also sector data confirm that the improvement in sentiment was broad-based. This outcome suggests that he fourth quarter of last year was probably the worst for Germany and likely for the euro area too. Survey indicators (PMI’s, IFO and ZEW) suggest that the contraction will begin to slow from the start of this year, but the ZEW added that
there is chance of a mild recession.
The final figure of euro zone CPI inflation for December, showed a downward revision from compared to the first estimate. The annual rate of inflation was downwardly revised from 2.8% Y/Y to 2.7% Y/Y, compared to a reading of 3.0% Y/Y in November. On a monthly basis, inflation rose by 0.3% M/M led by higher prices for recreation & culture (2.0% M/M), hotels & restaurants (1.0% M/M), transport (0.4% M/M) and food (0.3% M/M). Higher prices for those categories were partly offset by lower prices for clothing (-1.3% M/M), communication (-0.2% M/M) and energy (-0.1% M/M). Core CPI stayed unchanged at 1.6% M/M, for a fourth consecutive month. Inflation is now finally off its 3.0% peak, and will probably slow further over the coming months although only gradually as energy prices remain stubbornly high and tax increases are likely to continue to put upward pressure on prices.