The German ifo business climate might deteriorate in April, but most business and consumer confidence indicators in the EMU could improve. Despite rising energy prices, inflation in Germany is likely to drop to around 1.6% yoy. The downward shift is mainly due to a base effect, because the sharp increase in energy prices last April is dropping out of the calculation.

In April, the German ifo business climate index might fall back somewhat. The current assessment could improve, but business expectations are more likely to deteriorate, just like the US ISM index. Furthermore, the euro has appreciated and the crude oil price has risen again. However, the German ZEW economic sentiment and the DAX performance index have both gone up. The yield spread has widened due to the increase in long-term interest rates. In May, GfK German consumer confidence might stabilize, as consumers??™ willingness to buy could continue to improve, whereas income expectations and the economic outlook are likely to deteriorate slightly, after having improved significantly. Belgian business confidence is expected to recover in April, as it had dropped unexpectedly in March. French business confidence might continue to improve in April. The same also applies to French and Italian consumer confidence. But Italian business confidence might deteriorate once more. The EMU current account is expected to have grown in February, just like the trade balance. EMU industrial new orders are likely to have soared in February, in the same way as the corresponding German figure.

The German L?¤nder are expected to start publishing CPI data as from Wednesday, with preliminary national results available on Thursday or Friday. Inflation in Germany is likely to fall from 19 to 1.6% yoy in April. Higher prices for gasoline and heating oil will probably amount to about 0.1 pp. Seasonal effects are likely to dampen the price level slightly. We therefore expect prices to rise by 0.1% mom overall.The annual rate will fall mainly due to a base effect, as energy prices had risen nearly 4% mom in April 2006.