Eco Analysis - German ZEW survey fell in April (H. Amourda, B. Hilliard)

Eco Analysis - German ZEW survey fell in April (H. Amourda, B. Hilliard)

■ German ZEW survey fell in April

Waiting for the WEO of the IMF, some key economic data were released this Tuesday. The German ZEW survey (economic sentiment) fell for the first time since November 2012, from 48.5 to 36.3 in April. On the inflation side, the final euro aggregate CPI inflation confirmed the flash estimate at 1.7% yoy while the UK CPI printed at 2.8% yoy in March. Looking ahead, we will watch closely the UK labour data and MPC minutes due to be released on Wednesday.

The German ZEW survey reported a fall in both current situation (down 4.4 points to 9.2) and economic sentiment (down 12.2 points to 36.3). The Cyprus bail-in and questions on the euro area crisis management probably affected investors' sentiment. However, the balance of answers is still positive and points to an improvement of the economic growth in the next six months. Moreover, it is too early to expect a continued downward trend in sentiment given some recent positive hard data, but confirms our view of weaker growth in Q2.

■ Euro area CPI confirmed flash estimate at 1.7% yoy

Inflation in the euro area remains on a downtrend. The euro area CPI ticked lower at 1.7% yoy in March which translates into a 1.2% mom. The core CPI accelerated at 1.5% yoy from 1.3% and the EMU HICP ex tobacco printed at 116.94 from 115.56. The components point mainly to an energy-driven fall. In fact, energy prices fell from 3.9 % yoy to 1.7%. Also noteworthy, we have observed some pressures from the core components: services prices (+0.3 pp to 1.8% yoy) and non-energy industrial goods (+0.2 pp to 1.0% yoy). Looking at the national data, HICP inflation broadly stabilised in some core countries (Germany, Netherlands and Finland) while it decelerated in most other countries: including France, Italy and Spain.

Looking ahead, we expect the 2013 average to print at 1.8% yoy on the back of higher oil prices in EUR in the second half of the year. Further ahead, we expect the weak economic activity in most peripheral countries to drag down the inflation rate of the euro area aggregate. Please note that our forecasts of EMU HICP ex tobacco are available on Bloomberg (Function SXEI).

■ UK price data contain little surprise

CPI inflation was steady at 2.8% yoy (market 2.8%, SG 2.9%) but core CPI rose from 2.3% to 2.4% (market 2.3%, SG 2.4%). Contributions to the changes in the inflation rate were mostly minor, between + and - 0.03pp. Food inflation was stable at 3.7%. The one exception was recreation & culture which added 0.08pp to inflation. This was digital cameras, books and DVDs. For RPI, the story is similar. It rose to 3.3% from 3.2%.

There was also a small increase in CPI core inflation from 2.3% to 2.4%. We think that the recent downtrend in core inflation has now come to an end. This is what worries us most about the inflation outlook.

We will be updating our price forecasts later in the day and posting them on the SG research website as usual.