Eurozone: Mixed signals
The latest EZ indicators give mixed signals, with a deteriorating labour market but improving retail sales and confidence. The rate of unemployment increased by 0.1pps between October and November 2012 and reached a new record high of 11.1%. With the exception of Germany, where unemployment stabilised at 5.4%, all the leading economies registered an increase, most notably Spain (from 26.2% to 26.6%). However, retail sales in the EZ increased by +0.1% mo/mo in November after three consecutive months of decline. Moreover, the Economic Sentiment Index (ESI) in December increased for the second successive month, by +1.3pps after +1.4pps in November, in line with the trend signalled by the PMI. The ESI improved for all the leading economies, particularly Italy (+2.0pps) and Germany (+1.0pps). In terms of sectors, all except retail recorded improved confidence, which was especially marked in industry and in services. The decline in the retail sector was moderate (-0.9pps) and followed a large increase in November (+7.2pps).
US: Fiscal cliff
Resolution of the “fiscal cliff” came at the last minute and did not address spending. In effect, the negotiations focused on less than 1% of the population, those earning over USD400,000, for whom taxes will rise on both income and investments. To fund “Obamacare”, an additional 3.8% tax on investment income was implemented for those earning over USD200,000. However, 77% of Americans will be affected by an increase in the payroll tax from 4.2% to 6.2%, removing significant income and consumption from the economy. Expect negotiations on spending cuts to continue into March, when the debt ceiling will be reached. Since Republicans were defeated on taxes, it is expected that they will demand significant spending cuts, perhaps through scheduled automatic cuts, by holding the debt ceiling hostage.
Switzerland: Uncertain outlook
Following surprisingly robust GDP growth of +0.6% q/q in Q3 2012, the outlook has deteriorated markedly against a background of global economic uncertainties, which are likely to limit capital spending and exports, in particular. EH forecasts capital spending will grow by +0.6% in 2013, after +0.4% and +4% in 2012 and 2011 respectively. Exports are forecast to rebound only moderately in 2013 (+1.7%) after contracting by -0.2% in 2012. Meanwhile, the leading indicators are not providing a clear outlook, with the PMI index continuing to increase in December (the third consecutive month) but the downtrend in the KOF sentiment index accelerating in December. However, it should be noted that the two indicators are not fully comparable, with the PMI focus on medium- and large-sized enterprises and the KOF on small- and medium-sized companies.
Venezuela: Inauguration postponed
With President Chavez unable to attend his inauguration scheduled for 10 January, as he remains under treatment in Cuba after surgery for cancer, the National Assembly voted to postpone the inauguration and allow him to be sworn in by the Supreme Court at a later date (unspecified). While the opposition maintains that failure to attend the scheduled inauguration is unconstitutional, the government argues that as Chavez is a re-elected, not new, president the postponement does meet constitutional requirements. The Supreme Court has not ruled on the constitutional position, but, as it is strongly pro-Chavez, could be expected to be supportive. The opposition does not seem to have the ability to change the situation but, while the question of President Chavez’ recovery remains open, considerable uncertainty over the future will persist.
Countries in Focus
Mediterranean, Africa & Middle East – central African Republic
Americas – Ecuador
Asia-Pacific – Vietnam
Europe – Poland