German Exports Grow For Third Month, Trade Surplus Unexpectedly Increases

Although at a slower pace, German exports increased for the third month in a row in August on rising global demand. The better-than-expected export growth helped the trade surplus to increase surprisingly, strengthening recovery hopes.

According to provisional data released by the Federal Statistical Office on Tuesday, exports rose by a calendar and seasonally adjusted 2.3% month-on-month in July, slower than a downwardly revised 6.1% increase in June, but larger than the 1.2% rise expected by economists. Annually, exports slipped 18.7% to EUR 70.5 billion.

At the same time, imports remained flat on a monthly comparison in July versus a revised 5.9% rise in June and the expected rise of 1%. Germany imported commodities worth EUR 56.6 billion, down 22.3% from July 2008.

Monthly growth for exports and imports for June was upwardly revised from 7% and 6.8%, respectively.

In July, the trade surplus increased to EUR 13.9 billion from a revised surplus of EUR 12.1 billion in June. The consensus forecast for July was EUR 11.3 billion. A year ago, the trade balance recorded a surplus of EUR 14 billion.

Meanwhile, the current account surplus totaled EUR 11 billion compared to June’s revised EUR 13.5 billion. But,the surplus stood above the expected EUR 10 billion. The surplus for July include a deficit of EUR 3.3 billion in services, factor income net of EUR 4.3 billion, negative EUR 2.7 billion in current transfers and supplementary trade items of minus EUR 1.2 billion.

Germany dispatched commodities worth EUR 43.4 billion to the EU member states, while it received commodities to the value of EUR 37.1 billion from those nations. From July 2008, exports to and imports from the EU nations slipped 20.5% and 20.4%, respectively.

Meanwhile, exports to euro area totaled EUR 29.4 billion, down 19.5% from last year, while the value of the commodities received from those countries amounted to EUR 26.7 billion, which was 20.5% lower than in July 2008.

Exports of commodities to nations outside the European Union or third countries declined 15.7% to EUR 27.1 billion in July and imports from those countries fell 25.7% to EUR 19.5 billion.

A report released by the Federal Ministry of Economics and Technology on September 7 revealed a 3.5% monthly growth in factory orders in July, marking the fifth consecutive rise. A rise in the new orders in the third quarter is also likely to result in industrial output growth, the ministry said.

The ministry is slated to issue the industrial output data for July at 6.00am ET. After falling 0.1% in June, industrial production is expected to grow 1.6% in July.

According to the Paris-based Organization for Economic Co-operation and Development’s latest Interim Economic Assessment, global recovery from the recession is likely to arrive earlier than expected. Eurozone GDP is expected to fall 3.9% versus previous estimate of a 4.8% decline. The decline forecast for German GDP was upwardly revised to 4.8% from 6.1% for 2009.

UK July Manufacturing Output Growth Tops Expectations; Biggest Rise Since Jan. 2008

UK manufacturing output recorded the strongest growth since January 2008 on robust auto production in July.

Tuesday, the Office for National Statistics reported that the British manufacturing output grew for the second month in a row with a 0.9% rise in July. Economists were expecting the monthly growth to ease to 0.3% from a revised 0.6% in June.

Output increased in eight of the 13 sub-sectors and decreased in four sub-sectors with one sub-sector remaining flat in July. Transport equipment industries showed the most significant output growth of 3.8%, followed by chemical and man-made fibres industries with a 3.3% rise.

Despite decreases in utility as well as mining and quarrying sectors, industrial production recorded a monthly rise of 0.5% in July, slightly slower than the revised 0.6% growth seen in June. However, monthly growth was better than the consensus forecast of 0.2%. Mining and quarrying output decreased 1% with a decrease in oil and gas production, while energy supply output was down 0.2%.

Annually, manufacturing and industrial production declined 10.1% and 9.3%, respectively in July. Economists were looking for a 11.1% fall in manufacturing and a 10.1% drop in industrial output.

In the three months to July, manufacturing output slipped 11.4% from the same period of previous year and industrial output dropped 10.7%.

Driven by the car scrappage scheme, new car registrations rose 6% year-on-year to 67,006 units in August. The Society of Motor Manufacturers and Traders data showed that the increase in July was the first since April last year.

Commenting on the latest data, Chief Economist at the British Chambers of Commerce, David Kern said manufacturing output data supports the assessment that the third quarter of the year might show a return to economic growth. But, the early stages of upturn would be driven by a turnaround in stock levels, so it is important to retain the stimulus provided by quantitative easing.

The Bank of England is set to announce its interest rate decision on September 10. The central bank is widely expected to leave the interest rate untouched at a record low of 0.5% and to continue its GBP 175 billion asset purchase programme.

The British manufacturing sector shrunk in August, according to a monthly survey from the Chartered Institute of Purchasing and Supply and Markit Economics. The manufacturing PMI dropped to 49.7 in August from 50.2 in July.

A survey report by the manufacturers’ organization EEF and BDO Stoy Hayward on September 8 said a recovery in the UK manufacturing sector is likely to take some time to gain footing, due to continued uncertainty regarding the strength of the markets, and tighter credit conditions weighing on recovery prospects into the next year.

Australia Retail Sales Drop Unexpectedly In July

Australian retail sales continued to decline for the second straight month in July, the Australian Bureau of Statistics announced Wednesday. The bureau also released the housing finance statistics for July, with total housing finance commitments in the country swinging to a monthly decline for the first time in ten months.

Retail trade dropped a seasonally adjusted 1% month-on-month in July, which is faster than the 0.8% drop in June. Economists were looking for 0.5% growth. The total retail turnover amounted to A$19.62 billion in July compared to the A$19.82 billion turnover witnessed in the previous month. The decline in retailing was largely a result of falling sales of household goods and food in July.

Household goods retailing declined at a monthly rate of 3.6% in July, compared to the 3.4% growth in the previous month. Food retailing decreased 1.9%, and clothing, footwear & personal accessory sales fell 0.6%.

On the other hand, retailing in department stores recorded the biggest rise in July, up 2.5% on month compared to the 9.7% drop in June. Retailing in cafes, restaurants & takeaway food services retailing was up 1%, while other retailing increased 0.8% in July.

Analyzing by individual states, retail trade declined 1.4% in both Queensland and South Australia. Retailing in New South Wales fell 1.2%, while sales in Western Australia dropped 0.9%. On the other hand, retail trade in Northern Territory registered a monthly rise, up 2% in July.

The bureau also revealed that approvals for housing finance in July fell a seasonally adjusted 2% from the previous month, exceeding economists’ expectations of a 1% decline. The monthly fall in housing finance commitments was the first recorded since the 0.9% drop witnessed in September 2008. In June, approvals for housing finance were up 0.4% month-on-month.

The total housing finance commitments in July were worth A$22.46 billion in July, down 2.3% from the A$22.99 billion reported in June.

Owner occupied housing constituted A$16.88 billion of the total. Of this, the number of dwelling constructions declined 0.7% on month compared to the 2.7% growth in the last month. Purchases of new dwellings fell 0.5%, while purchases of established dwellings dropped 2.3% in July.

Moreover, refinancing of established dwellings fell 1.7%, excluding which owner occupied housing finance commitments decreased 2.2% in July.

From a lender’s perspective, the number of owner occupied dwellings financed by banks fell 2.3% in July compared to the 0.7% increase in the previous month, while those financed by non-banks rose 0.2%.

Earlier in the day, Westpac bank and the Melbourne Institute announced that consumer sentiment in Australia climbed to its highest level since July 2007, in the month of September.

The consumer confidence index was at 119.3, rising 5.2% in September compared to the 113.4 reading in the previous month. Westpac’s Chief Economist, Bill Evans, said, “This is a truly extraordinary result. The standout story is the ‘relief rally’ for consumers - relief that the economy has avoided recession and that expected job losses have not materialized.”

Over the last four months, the index grew 34.4%, which is the largest 4 month increase in the history of the index, the report said.

“The case for a rate hike as early as next month has been strengthened considerably by this further surge in confidence”, Evans noted. The Reserve Bank of Australia had left the interest rate unchanged at 3% last week.

Meanwhile, the Australian dollar pared its early Asian session’s gains against other major currencies following the release of the retail trade data. The aussie thus fell from a fresh yearly high against the U.S. dollar and multi-week high against the yen.

European Economics Preview: UK External Trade Data Due

Wednesday, UK’s external trade data is due.

At 2.00am ET, Germany’s Federal Statistical Office is set to issue a final report for August CPI. According to preliminary estimate, consumer prices remained unchanged on an annual basis in August. The statistical office is expected to confirm the initial estimate.

At 3.00am ET, the Czech CPI and Hungarian trade balance reports are due. Czech annual inflation is forecast to stay at 0.3% in August.

Half an hour later, the Statistics Sweden is scheduled to issue industrial orders and industrial production reports for July. After declining 20.8% annually in June, industrial output is expected to fall 21.2% in July.

At 4.30am ET, UK’s Office for National Statistics is scheduled to issue external trade data. The visible trade deficit is seen at GBP 6.25 billion in July, smaller than the GBP 6.45 billion in June. Meanwhile, total trade deficit is expected to fall to GBP 2 billion from GBP 2.17 billion in June.

UK Consumer Confidence Improves Further In August: Nationwide

Consumer confidence in the UK improved further in August, reflecting an increase in consumer’s assessment of their present situation, willingness to spend and the outlook for future months.

The Nationwide Building Society reported Wednesday that its consumer confidence index rose to 63 from an upwardly revised 61 in July, and also came in higher than economists’ expectations for a reading of 62.

The August reading is the highest since May 2008, when the index stood at 66. The latest survey was carried out in partnership with the market research group TNS from July 20 to August 23 among 1,000 people.

“The moderate increase in confidence this month indicates that, for the first time since April, consumers are beginning to feel more positive not only about the future, but also about the present situation,” Martin Gahbauer, chief economist with Nationwide said.

The present situation index rose one point to 17 in August, after reaching an all-time low in July. The gauge rose for the first time since April. The expectations index increased by three points to 94 and the spending index climbed one point to 97. However, consumers continued to remain cautious about making major purchases.

“The rise in positive sentiment across all the indices is no surprise as a number of key economic indicators continue to show that we may have reached the bottom of the current recessionary cycle”, Nationwide said.

Shop prices dropped 0.1% year-on-year in August, marking their first decline since February 2007, the British Retail Consortium said on Wednesday.

On Tuesday, an official report showed that manufacturing output rose for the second consecutive month in July and at the fastest pace since January 2008, boosted by a rise in auto production. Output grew 0.9% in July, after a 0.6% rise in June.

Moreover, a report by Manpower released Tuesday showed that hiring intentions for the fourth quarter rose for the first time in three years.

Further, a report released today by Markit Economics, on behalf of the Recruitment & Employment Confederation and KPMG, showed that the job market in the UK showed signs of improvement in August, reflecting a rise in both temporary and permanent staff.

Even with all the positive news, Nationwide noted that there was likely to be a slow recovery. The report said, “It is likely that there will be a protracted recovery and we may see some volatility in the data as factors such as the rise in fuel duty affect sentiment.”

A similar view was echoed by Bernard Brown, Partner and Head of Business Services at KPMG who said it was too early to speculate whether the improvement in the job market signaled the end of the recession.

Elsewhere, the National Institute of Economic and Social Research in its latest report pointed out that even though GDP grew 0.2% in the three months ended August,there could now be a period of stagnation, with output rising in a few months and declining in others. Further, it warned that the end of recession did not mean a return to normal economic conditions.

On August 9, the British Chamber of Commerce said the UK economy could contract faster than earlier expected. The BCC said the economy is likely to contract 4.3% this year, worse than a 3.8% drop estimated in June.

However, it expects the economy to grow at a faster than initially expected pace in 2010. The UK economy is projected to grow 1.1% next year, better than a 0.6% growth anticipated earlier. In 2011, growth is expected to rise to 1.9%.

Japan’s Economic Indexes Rise In July Suggesting Recovery

Economic conditions in Japan improved in July and the economy is moving towards a positive direction, the Cabinet Office’s business conditions indexes suggested Wednesday.

The coincident index, a measure to identify the current state of the economy, increased to 89.6 from 88.6 in June, representing the fourth consecutive month of increase. It was expected to rise to 89.

Further, the leading index, which is used to anticipate changes in the direction of the economy, rose to 83 in July from 80.9 in the preceding month. Economists expected a reading of 81.9. The index rose for the fifth consecutive month in July.

However, the lagging index that is used to confirm turning points and business cycle phases, dropped to 82.4 from 84.1 recorded May and June.

The Japanese economy pulled out of its worst recession since World War II in the second quarter on government stimulus measures and strong exports. Real gross domestic product expanded 3.7% on an annualized basis during the three months to June, after shrinking for four straight quarters.

A day earlier, the Cabinet Office said in its monthly economic report for September that the Japanese economy is showing movements of picking up recently despite being in a difficult situation such as a rise in the unemployment rate to an all-time high. The jobless rate hit 5.7% in July, up from 5.4% in June.

However, the government expects the economy to pick up, reflecting completion of inventory adjustment, effects of the policy packages and improvement of external economic conditions.

But, calls for a gradual withdrawal of stimulus measures have risen. Bank of Japan board member Miyako Suda said on Wednesday that the need for extraordinary measures is diminishing as corporate financing conditions improved recently.

In a speech in Nagasaki, Suda said, “We should not underestimate the drawbacks” of unconventional steps.” She added that continuing these abnormal measures for a long time could harm self-correcting mechanism of market.

UK Trade Deficit Remains Unchanged In July

Wednesday, the British overall as well as visible trade deficits remained unchanged in July. With rising global demand, exports recorded the biggest monthly growth since January 2008.

A report from the Office for National Statistics revealed on Wednesday that the deficit on trade in goods and services totaled GBP 2.4 billion in July, unchanged from June. The deficit for June was revised from the initial estimate of GBP 2.2 billion. Economists had expected the shortfall to narrow to GBP 2 billion in July.

The visible trade deficit was GBP 6.5 billion in July, unchanged from June. Exports and imports of goods increased by GBP 0.9 billion each. The visible trade deficit was larger than the expected shortfall of GBP 6.2 billion.

British exports of goods grew 5% month-on-month in July, the biggest increase since January 2008. Goods worth GBP 19.2 billion were exported in July. At the same time, total imports of goods increased 3.5% to GBP 25.7 billion.

The ONS report showed that the trade in goods with both EU and non-EU nations resulted in deficits in July. While the deficit with EU nations narrowed, the non-EU shortfall increased from the prior month.

The visible trade deficit with EU nations dipped to GBP 2.6 billion in July from GBP 2.8 billion in June. Exports to EU nations climbed 6.5% and imports from EU moved up 3%.

Meanwhile, the deficit with non-EU countries widened to GBP 3.9 billion from GBP 3.7 billion in June. Shipments to non-EU countries were up 3%, while imports from those nations grew 4.5%.

As the summer maintenance work curbed North Sea production, the oil deficit reached the highest level in a year. The shortfall stood at GBP 537 million in July, up from GBP 433 million in June.

At the same time, the visible trade deficit was partially offset by the surplus in services. The trade in services showed GBP 4 billion surplus versus June’s GBP 4.1 billion.

In an interview to BBC, former Federal Reserve chief Alan Greenspan said UK would be harder hit than the U.S. by the current recession and collapse in world trade.

In a report released on Wednesday, Moody’s said it is unlikely to downwardly revise the Aaa-rated sovereigns in the near term. The rating agency said the UK and USA have lost height in the Aaa space and continue to warrant its characterization as “resilient”. However, to maintain this status, UK and US will have to severely adjust their fiscal policies, even in the unlikely event of a strong rebound of their economies, the report said.