German Gross Domestic Product (4Q 1) (07:00 GMT; 02:00 EST)
Consensus: 0.3%
Previous: 0.6%
Outlook: German growth, although remaining positive looks to be open to a pullback as export growth waned slightly in December while energy costs continued to rise. Following a four month advance in exports, German orders declined 1.6 percent for the month. Although bolstered by a depreciated currency, foreign demand looks to have thinned as a result of the previous import glut experienced earlier combined with still lofty energy costs. The aforementioned conditions looks to contribute slightly as the consensus expected such a retracement. Attributing the most to the less than exemplary quarterly figure continues to be weak consumer demand in the region. Although business confidence remains comparatively high, individuals saddled with concerns over employment and dwindling opportunities had to pay higher energy costs. This left little for the spender in the last months of 2005 driving the overall component lower for two consecutive months. As a result, European Central Bank President Trichet may have more to justify should policy makers decide on another 25 basis point rate increase. Granted, inflationary pressures still loom, the policy head may need to focus on the infrastructure before joining the status quo.
Previous: Europe’s largest economy accelerated for the third consecutive quarter to 1.4 percent for the three months ending in September. Growth in the German economy has continued to shift its reliance on sales of goods abroad rather than domestic spending which would be more apt to sustaining an economic recovery. Over the period, exports accelerated to a near-five year high 4.7 percent; well outpacing import growth of 4.4 percent for the same quarter. German goods gleaned a competitive advantage against other global producers over the three months with the euro falling 13 percent falling from the 10-year high set in the beginning of 2005. Sales to European Members has also gathered momentum with the area’s economy rebounding and consumers departing with their wages more freely. Conversely, the largest detractor from expansion, and where it was needed most, lied with a third quarter of falling domestic spending. German consumers’ reigned in their spending 0.2 percent for the period as unemployment averaged 11.6 of the population and more immediate demands on earnings rested with record high petrol and heating bills. However, the surprise addition to growth for the three months was a jump in investment spending brought on by business confidence at a 5-year high. Purchases by companies rose 2.2 percent for the period, the fastest pace since the first quarter of 1999, led by a 3.8 percent increase in spending on machinery and equipment.
German ZEW Survey (Economic Sentiment) (FEB) (10:00 GMT, 5:00 EST)
Consensus: 71.5
Previous: 71.0
Outlook: February’s survey of economic sentiment by the ZEW is estimated to come in at a strong reading of 71.5. The survey is designed to weigh optimistic views of the economy against more negative sentiment. The anticipated positive jump in the indicator indicates that microeconomic sentiment favors growth in the German economy over the next six months. German business confidence has recently risen to its highest point in five and a half years on estimates that the economy will grow as much as 2 percent this year. Managers at German manufacturing companies have expressed optimism in domestic demand and are expecting to crank up production in the coming year. Foreign demand for manufactured goods will continue to build strength as heavy consumers of German exports, such as China, maintain rapid levels of growth.
Previous: In January, the ZEW’s release of economic sentiment in Germany revealed a survey value of 71.0. The relatively strong reading was an indication that the German economy may be picking up steam again after a brief falter in the fourth quarter of 2005. GDP growth in the months from October to December stood at 0.3 percent, a sluggish pace in comparison to the 0.6 percent growth in the previous quarter. Some economists have taken the high 71.0 point reading to be evidence of sentiment that growth in the German economy will be stronger in the coming year at the hands of increased spending and industrial expansion. Others have offered the opinion that the strong survey results are simply a reflection of the cyclical nature of economic sentiment in the German economy.
U.S. Advanced Retail Sales (JAN) (13:30 GMT, 8:30 EST)
Consensus: 0.9%
Previous: 0.7%
Outlook: Retail sales in the U.S. are expected to grow 0.9 percent in January marking expansion for the fifth consecutive month. Excluding automobiles, the rate of expansion in sales is estimated to be 0.8 percent. Although purchasing of autos was heavier this January than the same time a year ago and higher than December, a large volume of sales is attributed to bulk orders from corporate clients. As a result, increased auto sales will have a minimal effect on overall retail spending as the bulk corporate orders are not reflected in retail sales data. Interestingly, much of the growth in retail spending is likely to result from the use of gift cards received over the holiday season. In 2005, the value of gift cards purchased by customers was 6.6 percent higher than the previous year. Because the cards are not counted as sales until they are used, retailers are likely to see a jump in sales volume in January. Supporting the case for increased retail sales is the University of Michigan’s Consumer Confidence Index which indicates that consumers are more willing to spend in coming months on the prospect of increased employment and higher wages. Economists will be watching to see if this spending exuberance continues through the year as growth in housing prices slows and detracts from consumers’ expendable income.
Previous: In December, U.S. retail sales increased 0.7 percent, suggesting that growth in spending was slower than expected. A surge in gasoline prices going into the holiday season had considerable effect on retail spending. As fuel costs rose, wholesale prices began to climb and customers were deterred by unusually high prices at the retail level. Additionally, the high oil prices forced consumers to pay more at the pump and left them with less to spend at shopping centers. Also having an effect on December sales figures was heavy purchasing of store gift cards. Revenue gains from gift cards are not realized until the card is used, which means that sales revenue took a hit on December balance sheets and will not be seen until cards are used by their recipients in 2006. Weak sales in December dragged down quarterly growth, reflects the weakest holiday consumption in several years.
Richard Lee is a Currency Strategist at FXCM.