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World Economy

16

OPEC Monthly Oil Market Report – November 2017

Labour market

developments continued to improve as the unemployment rate fell below 9% for the first time

since the onset of the financial crisis in 2009. It stood at 8.9% in September, compared with 9.0% in August.

Still, labour market developments differ widely within the Euro-zone. Germany’s unemployment rate

remained at a very low 3.6% in September for the second month in a row, while in Spain it still stood at

16.7%, which is the lowest since 2009, and shows a continuation of a considerably improving trend.

Inflation

was backed only to some extent by these improving developments in the labour market, which on the flip-

side may increase the likelihood of rising inflation in the future, as wages so far have not responded much to

these improvements. Considerable slack remains in the labour market, but signs are emerging that wages

based on latest trade union agreements in some Euro-zone economies may rise more significantly than in

the past years. Inflation stood at a muted 1.4% y-o-y in October, slightly down from the 1.5% y-o-y in

September. Core inflation – that is, the consumer price index (CPI), excluding energy, tobacco and food – fell

to 0.9% y-o-y in October, after a level of 1.1% y-o-y for the previous four months. Both numbers are well

below the ECB’s approximate 2% inflation target.

While inflation is expected to pick up in 2018 as economic developments are improving, the ECB’s monetary

policies may also have an impact on credit supply growth from financial institutions to the private,

non-financial sector. The growth dynamic of this liquidity line to SMEs appears to have stabilised, to rise by

1.53% y-o-y in September, the same growth level as in August and higher than in July, when liquidity to the

private sector rose only by 1.3%. Hence, the development of credit growth seems to continue to support the

ongoing recovery.

Industrial production

grew by a healthy 3.5% y-o-y in August, after 3.7% y-o-y in July, once again a

significant level.

Retail sales

growth in value terms picked up, increasing by 4.9% y-o-y in September,

compared with 3.4% y-o-y in August. These most recent indicators have remained at considerable levels

over the past months and now continue to demonstrate a healthy dynamic with ongoing improvements in the

underlying economy. This trend is forecast to continue in 4Q17 and also to some extent in the coming year. It

remains to be seen, however, whether the trend will stay as strong as in the first three quarters or, as

currently expected, will slow down somewhat.

Graph 3 - 5: Euro-zone CPI and lending activity

Graph 3 - 6: Euro-zone PMIs

The latest

PMI

indicators have confirmed the ongoing improvement in the Euro-zone. The manufacturing

PMI increased to 58.5 in October, compared with 58.1 in the previous month. This marks the highest level on

record, i.e. since the initiation of this index back in 2012. The important PMI for the services sector, which

constitutes the largest sector in the Euro-zone, dropped slightly, but remains at a high level of 55.0, after

seeing a level of 55.8 in September.

-4

-3

-2

-1

0

1

2

3

-1

0

1

2

3

Oct 12

Feb 13

Jun 13

Oct 13

Feb 14

Jun 14

Oct 14

Feb 15

Jun 15

Oct 15

Feb 16

Jun 16

Oct 16

Feb 17

Jun 17

Oct 17

CPI (LHS)

MFI lending (RHS)

Sources: Statistical Office of the European Communities,

European Central Bank and Haver Analytics.

% change y-o-y

% change y-o-y

55.0

58.5

48

50

52

54

56

58

60

Oct 16

Nov 16

Dec 16

Jan 17

Feb 17

Mar 17

Apr 17

May 17

Jun 17

Jul 17

Aug 17

Sep 17

Oct 17

Index

Sources: IHS Markit and Haver Analytics.

Services PMI

Manufacturing PMI