NEWS / Foreign Exchange

EMU industrial confidence and economic sentiment are expected to have deteriorated in October

• Decline in German adjusted unemployment could have been smaller in October

• CPI inflation in Germany is likely to have increased to 2.5 % yoy in October

• The flash estimate for October is likely to show EMU inflation accelerating to 2.4% yoy

French consumer confidence might have remained stable or even rebounded in October, having plummeted last month. As the national climate indicators showed mixed results, EMU industrial confidence and economic sentiment are likely to have deteriorated in October, but not as sharply as before.

The October RBS purchasing managers??™ index for the German manufacturing sector will probably have declined by 0.7 percentage points, somewhat less than in September, since the Ifo business climate has only fallen slightly this month. The final RBS purchasing managers??™ index for the EMU manufacturing sector is not expected to be substantially different from the estimate.

After having plunged the previous month, German retail sales might at least have remained unchanged in September, despite the fact that retailers??™ business assessment and consumer confidence both deteriorated in September.

After the summer holidays, the German labour market always tends to rebound, but this was even more noticeable than usual this September. Adjusted unemployment fell by 50k, i.e. somewhat more than the average decline in the first seven months of 2007. However, given the increased uncertainty due to financial market turmoil, in addition to declining business sentiment levels, the recovery on the German labour market is likely to slow down in the near future. We forecast that unadjusted unemployment will have fallen by a good 100k in October, which would translate into a seasonally adjusted decline of about 25k, leaving the adjusted unemployment rate stable at 8.8%.

On Monday, the remaining German L?¤nder Brandenburg and North Rhine-Westphalia will publish their regional CPI data. Subsequently, the preliminary results for national German CPI in October will be released too. Regional data published up to now by four states show price increases ranging from 0.1% mom to 0.3% mom. In all the states, the monthly inflation was mainly due to higher prices for food and clothing, whereas energy prices had little impact. Therefore, we expect German inflation to have accelerated slightly by 0.2% mom and 2.5% yoy.

For the same reasons as in Germany, the Eurostat flash estimate is likely to show euro area inflation going up from 2.1% yoy in September to 2.4% yoy in October. This would correspond with a monthly increase of 0.3% in unadjusted terms.