EME Macro/Strategy: We are stuck

In October, business and consumer confidence weakened on the whole, in both the Eurozone and the EU overall. Germany, on the margin, continues to fare worse than most, both within the Eurozone and relative to CEE. Inventories are rising everywhere; however, in Germany, the index for inventories in the industrial sector exceeds what was seen in the 2012 downturn and is halfway what it was at the peak in 2008. In CEE, inventories have not yet increased much, and this should, on the margin, help their industrial production performance. Household sector confidence overall is moving sideways, all countries are reporting that households perceptions of inflation are easing currently, but expectations in most countries are creeping up. Unemployment fears are generally up (not everywhere). Critically, the households surveys on current savings suggest buffers are very high in CEE and improving in many places in the EU, but they are rock bottom in Germany. This is a further reason, in our view, that is keeping the contagion from Germany to the rest of Europe looser than in the past.