Euro area still weakest among major developed economies

Last week's economic reports again showed weakness in the euro area while data from Japan were mixed and those from the United States remained somewhat positive.

The Organisation for Economic Co-operation and Development reported on Thursday last week that its composite leading indicators for November pointed to a slowdown in activity among member countries, with the indicator for the OECD area as a whole falling 0.1 point in November to 100.1. The euro area has the weakest outlook among the major OECD economies while the OECD reported that Japan and the US showed “stronger signs of a positive change in momentum”.

Indeed, data on the fourth quarter last week already show shrinking economic activity in the euro area. Eurostat reported that industrial production in the euro area fell 0.1 percent in November, the third consecutive month of decline. Germany's Federal Statistical Office said last week that Europe's largest economy probably shrank in the fourth quarter.

This weakness is likely to persist as the OECD's composite leading indicator for the euro area fell 0.4 point in November to 98.3, its tenth consecutive month of decline.

In Japan, data from the Cabinet Office last week also suggested that the economy was weak in the fourth quarter. A report on Wednesday showed that the composite index of coincident economic indicators fell from 91.4 in October to 90.3 in November. The following day, data from the economy watchers survey showed that the diffusion index for current conditions rose to 47.0 in December from 45.0 in November but the index for future conditions fell to 44.4 from 44.7.

Leading indicators of the Japanese economy, though, gave somewhat more encouraging signals. The Cabinet Office's composite index of leading economic indicators rose 0.9 point to 92.9 in November, its first increase in four months. The OECD's composite leading indicator for Japan was unchanged at 101.5 in November after having fallen in the previous seven months.

In the US, data last week also provided some indications of a slowdown towards the end of last year. Retail sales rose just 0.1 percent in December after a 0.4 percent increase in November. Exports fell 0.9 percent in November, the second consecutive monthly drop.

Nevertheless, the Federal Reserve's beige book reported last week that the economy “expanded at a modest to moderate pace” from late November through the end of December.

Data last week also showed that the US economy is likely to continue to grow in early 2012. Consumer confidence improved in January, with the Thomson Reuters/University of Michigan consumer sentiment index reaching 74, the highest level since May. The OECD's composite leading indicator for the US rose 0.2 point to 101.2 in November.

There was one negative among the major forward-looking data for the US economy last week though. The Economic Cycle Research Institute's weekly leading index rose 1.0 point to 121.2 for the week ending 6 January but the growth rate fell 0.2 percentage point to minus 8.4 percent.