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22 September 2008

EZA 861 Report:




19Sep08: Germany

German job creation at its peak – imminent downturn might pave way for rate cut Q109

Recent labour market strength in Germany – with the unemployment rate at a 15 year low of 7.6% in Aug – stands in sharp contrast to the accelerating downturn in the economy.
Given the usual lag of unemployment to cyclical trends, a downturn in the job market seems imminent - but may be mitigated by structural changes and increased labour flexibility in recent years.
The impact on wages will be delayed, as witnessed by the IG Metall pay demand of up to 8%, marking a 13 year high.
This is likely to delay any ECB rate cut into 1Q09 or at least increase the threshold for the ECB to pursue lower rates.


Asset conclusions: the imminent downturn in the German labour market opens the door to rate cuts, but the ECB will wait for confirmation. Rate cut expectations in 4Q08 seem premature.



© EZA

Documents associated with this article

EZA861.pdf


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