Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060419e.jpg" width="353">
The labor market seems to be slowing just a bit in Slovenia, according to the monthly labor force survey reported today by the Statistical Office; after climbing from April 2005 through November, employment has been virtually flat since then through February. Even so, at 816,156, it stands 0.8% above a year ago, matching the growth pace for all of 2004, and close to that for the rest of Europe.
Unemployment continues stubbornly just above 10%, with January and February at 10.2%. This is low historically for the country, but as employment has apparently stopped increasing, unemployment has stopped decreasing. It bottomed out at exactly 10.0% in September.
Workers, meantime, appear to be doing &quot;all right&quot;. Their average wages, which were published yesterday, were SIT179.7 in February (SIT=Slovenian Tolars), after social security and income tax withholding. This marks a 2.7% real advance from February 2005, allowing for the 2.1% CPI inflation over the period. Real earnings in the rest of Europe were up just 0.4% in 2005, measured by wages and salaries for the EU-25 calculated by Eurostat.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060419f.jpg" width="353">
The average wage indicator hints at general gains in the Slovenian economy; GDP per capita real growth (in fixed 1995 prices) was 4.1% last year. According to the CIA World Factbook, Slovenia is the first transition economy to change from borrower to donor status at the World Bank, and its currency, presently pegged to the euro, is due to switch to the euro next year. All is not completely well, though, as the population has been almost completely flat since 1999; there was net out-migration during the break-up of Yugoslavia, then a modest recovery from 1999 to 2002, but almost no change since. And as we note here, the economy may be showing signs of plateauing after a nice run during 2005.
Country-source data on Slovenia are found in Haver&#39;s EMERGECW database. Since the country joined the European Union in 2004, data generated by Eurostat are also found in the EUROSTAT database. The CIA&#39;s helpful information on the general characteristics of the country are found <a href="http://www.cia.gov/cia/publications/factbook/geos/si.html">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/EMERGECW/@E7/@E7.HTM">Slovenia</a></th>
<th scope="col">Feb 2006</th>
<th scope="col">Jan 2006</th>
<th scope="col">Feb 2005</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Employment (SA, Thous.)</td>
<td>816.2</td>
<td>816.6</td>
<td>809.6</td>
<td>813.1</td>
<td>807.5</td>
<td>801.4</td>
</tr>
<tr>
<td class="firstcol">% Change (Mo/Mo &amp; Yr/Yr)</td>
<td>-0.0</td>
<td>0.0</td>
<td>(yr/yr) 0.8</td>
<td>0.7</td>
<td>0.8</td>
<td>-0.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate (SA, %)</td>
<td>10.2</td>
<td>10.2</td>
<td>10.1</td>
<td>10.1</td>
<td>10.6</td>
<td>11.2</td>
</tr>
<tr>
<td class="firstcol">Average Net Wages &nbsp;(Thous. Tolars)</td>
<td>179.7</td>
<td>179.3</td>
<td>171.4</td>
<td>177.1</td>
<td>168.2</td>
<td>159.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&quot;Real&quot; % Change*&nbsp; &nbsp; (Mo/Mo &amp; Yr/Yr)</td>
<td>-0.2</td>
<td>2.0</td>
<td>(yr/yr) 2.7</td>
<td>2.7</td>
<td>2.1</td>
<td>1.8</td>
</tr>
</tbody>
</table>
</body>
</html>

The labor market seems to be slowing just a bit in Slovenia, according to the monthly labor force survey reported today by the Statistical Office; after climbing from April 2005 through November, employment has been virtually flat [...]

Slovenia: Labor Market Hesitation Follows Good Growth in 2005

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060419a.jpg" width="353">
The total number of mortgage applications fell hard for the second consecutive week and posted a 1.7% drop. So far during April applications are 0.9% below the March average which fell 1.0% from February.
Purchase applications fell 2.5% w/w following the 4.7% drop to open the month but the April average so far is up 1.2% from March, which rose 0.2% versus February.
During the last ten years there has been a 54% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Applications to refinance slipped 0.4% after a 6.6% slide the prior week and in April are 4.1% below the March average.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060419b.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage rose further to 6.78% while the rate on 15-year financing rose to 6.%. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities and during the last ten years there has been a (negative) 82% correlation between purchase applications and the effective rate on a 30-Year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
States Fight Predatory Lending in Different Ways from the Federal Reserve Bank of St. Louis can be found <a href="http://stlouisfed.org/publications/re/2006/a/pages/predatory_lending.html"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">04/14/06</th>
<th scope="col">04/07/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>569.6</td>
<td>579.4</td>
<td>-15.3%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>407.4</td>
<td>417.7</td>
<td>-12.7%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,526.1</td>
<td>1,532.4</td>
<td>-18.4%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
</body>
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The total number of mortgage applications fell hard for the second consecutive week and posted a 1.7% drop. So far during April applications are 0.9% below the March average which fell 1.0% from February. Purchase applications fell [...]

Mortgage Applications Down Further

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060419c.jpg" width="353">
During March, the consumer price index (CPI-U) rose 0.4% following a 0.1% February up tick and matched Consensus expectations. The 0.3% rise in prices less food &amp; energy, however, was slightly firmer than expected.
Prices for core goods rose 0.3% (0.2% y/y) after a 0.1% February decline. Apparel prices reversed all of the prior month&#39;s drop with a 1.0% (-1.2% y/y) increase and household furnishings &amp; operation prices ticked up 0.1% (0.5% y/y) after no change during February. Medical care commodity prices rose 0.4% (4.1% y/y) while tobacco prices rose a strong 0.6% (4.5% y/y). New &amp; used motor vehicle prices fell 0.1% (+0.4% y/y).
Another 0.3% increase in core services prices reflected a second 0.4% (2.6% y/y) increase in shelter prices. Medical care services prices increased 0.4% (4.1% y/y) while school tuition &amp; fees posted a firm 0.5% (6.1% y/y) gain. Public transportation prices fell by 0.3% (+5.9% y/y), the third decline in the last four months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060419d.jpg" width="353">
Energy prices during March reversed all of the prior month&#39;s decline with a 1.3% jump led by a 3.6% (17.0% y/y) spurt in gasoline prices, which have moved 10.7% higher so far during April. Natural gas &amp; electricity prices fell 1.1% (+17.8% y/y) for the third decline in the last four months and fuel oil prices ticked up 0.4% (17.9% y/y).
Food prices inched up another 0.1%, the gain held back by a 1.7% (+6.4% y/y) decline in fruits &amp; vegetables prices. Meat, fish &amp; poultry prices reversed all of the prior month&#39;s decline with a 0.3% (0.9% y/y) rise.
The chained CPI, which adjusts for shifts in the mix of consumer purchases, jumped 0.5% and less food &amp; energy prices rose a stronger 0.6%.
Minutes to the latest FOMC meeting can be found <a href="http://www.federalreserve.gov/FOMC/MINUTES/20060328.htm"> here</a>.
The Interaction of Labor Markets and Inflation: Micro Evidence from the International Wage Flexibility Project from the Federal Reserve Bank of San Francesco is available <a href="http://www.frbsf.org/economics/conferences/0603/ilmi.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> </th>
<th scope="col">Mar</th>
<th scope="col">Feb</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.4%</td>
<td>0.1%</td>
<td>3.4%</td>
<td>3.4%</td>
<td>2.7%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.3%</td>
<td>0.1%</td>
<td>2.1%</td>
<td>2.2%</td>
<td>1.8%</td>
<td>1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>0.3%</td>
<td>-0.1%</td>
<td>0.2%</td>
<td>0.5%</td>
<td>-0.9%</td>
<td>-2.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.3%</td>
<td>0.3%</td>
<td>2.8%</td>
<td>2.8%</td>
<td>2.8%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>1.3%</td>
<td>-1.2%</td>
<td>17.3%</td>
<td>16.9%</td>
<td>10.8%</td>
<td>12.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food</td>
<td>0.1%</td>
<td>0.1%</td>
<td>2.6%</td>
<td>2.4%</td>
<td>3.4%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a> </td>
<td>0.5%</td>
<td>0.3%</td>
<td>3.0%</td>
<td>2.9%</td>
<td>2.5%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.6%</td>
<td>0.4%</td>
<td>2.0%</td>
<td>1.9%</td>
<td>1.7%</td>
<td>1.1%</td>
</tr>
</tbody>
</table>
</body>
</html>

During March, the consumer price index (CPI-U) rose 0.4% following a 0.1% February up tick and matched Consensus expectations. The 0.3% rise in prices less food & energy, however, was slightly firmer than expected. Prices for core [...]

CPI Up An Expected 0.4% During March

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060419c.jpg" width="353">
During March, the consumer price index (CPI-U) rose 0.4% following a 0.1% February up tick and matched Consensus expectations. The 0.3% rise in prices less food &amp; energy, however, was slightly firmer than expected.
Prices for core goods rose 0.3% (0.2% y/y) after a 0.1% February decline. Apparel prices reversed all of the prior month&#39;s drop with a 1.0% (-1.2% y/y) increase and household furnishings &amp; operation prices ticked up 0.1% (0.5% y/y) after no change during February. Medical care commodity prices rose 0.4% (4.1% y/y) while tobacco prices rose a strong 0.6% (4.5% y/y). New &amp; used motor vehicle prices fell 0.1% (+0.4% y/y).
Another 0.3% increase in core services prices reflected a second 0.4% (2.6% y/y) increase in shelter prices. Medical care services prices increased 0.4% (4.1% y/y) while school tuition &amp; fees posted a firm 0.5% (6.1% y/y) gain. Public transportation prices fell by 0.3% (+5.9% y/y), the third decline in the last four months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060419d.jpg" width="353">
Energy prices during March reversed all of the prior month&#39;s decline with a 1.3% jump led by a 3.6% (17.0% y/y) spurt in gasoline prices, which have moved 10.7% higher so far during April. Natural gas &amp; electricity prices fell 1.1% (+17.8% y/y) for the third decline in the last four months and fuel oil prices ticked up 0.4% (17.9% y/y).
Food prices inched up another 0.1%, the gain held back by a 1.7% (+6.4% y/y) decline in fruits &amp; vegetables prices. Meat, fish &amp; poultry prices reversed all of the prior month&#39;s decline with a 0.3% (0.9% y/y) rise.
The chained CPI, which adjusts for shifts in the mix of consumer purchases, jumped 0.5% and less food &amp; energy prices rose a stronger 0.6%.
Minutes to the latest FOMC meeting can be found <a href="http://www.federalreserve.gov/FOMC/MINUTES/20060328.htm"> here</a>.
The Interaction of Labor Markets and Inflation: Micro Evidence from the International Wage Flexibility Project from the Federal Reserve Bank of San Francesco is available <a href="http://www.frbsf.org/economics/conferences/0603/ilmi.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> </th>
<th scope="col">Mar</th>
<th scope="col">Feb</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.4%</td>
<td>0.1%</td>
<td>3.4%</td>
<td>3.4%</td>
<td>2.7%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.3%</td>
<td>0.1%</td>
<td>2.1%</td>
<td>2.2%</td>
<td>1.8%</td>
<td>1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>0.3%</td>
<td>-0.1%</td>
<td>0.2%</td>
<td>0.5%</td>
<td>-0.9%</td>
<td>-2.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.3%</td>
<td>0.3%</td>
<td>2.8%</td>
<td>2.8%</td>
<td>2.8%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>1.3%</td>
<td>-1.2%</td>
<td>17.3%</td>
<td>16.9%</td>
<td>10.8%</td>
<td>12.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food</td>
<td>0.1%</td>
<td>0.1%</td>
<td>2.6%</td>
<td>2.4%</td>
<td>3.4%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a> </td>
<td>0.5%</td>
<td>0.3%</td>
<td>3.0%</td>
<td>2.9%</td>
<td>2.5%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.6%</td>
<td>0.4%</td>
<td>2.0%</td>
<td>1.9%</td>
<td>1.7%</td>
<td>1.1%</td>
</tr>
</tbody>
</table>
Mortgage Applications Down Further 
by <a href="/comment/Moeller.html">Tom Moeller</a> April 19, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060419a.jpg" width="353">
The total number of mortgage applications fell hard for the second consecutive week and posted a 1.7% drop. So far during April applications are 0.9% below the March average which fell 1.0% from February.
Purchase applications fell 2.5% w/w following the 4.7% drop to open the month but the April average so far is up 1.2% from March, which rose 0.2% versus February.
During the last ten years there has been a 54% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Applications to refinance slipped 0.4% after a 6.6% slide the prior week and in April are 4.1% below the March average.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060419b.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage rose further to 6.78% while the rate on 15-year financing rose to 6.%. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities and during the last ten years there has been a (negative) 82% correlation between purchase applications and the effective rate on a 30-Year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
States Fight Predatory Lending in Different Ways from the Federal Reserve Bank of St. Louis can be found <a href="http://stlouisfed.org/publications/re/2006/a/pages/predatory_lending.html"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">04/14/06</th>
<th scope="col">04/07/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>569.6</td>
<td>579.4</td>
<td>-15.3%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>407.4</td>
<td>417.7</td>
<td>-12.7%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,526.1</td>
<td>1,532.4</td>
<td>-18.4%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
Slovenia: Labor Market Hesitation Follows Good Growth in 2005 
by <a href="/comment/Stone.html">Carol Stone</a> April 19, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060419e.jpg" width="353">
The labor market seems to be slowing just a bit in Slovenia, according to the monthly labor force survey reported today by the Statistical Office; after climbing from April 2005 through November, employment has been virtually flat since then through February. Even so, at 816,156, it stands 0.8% above a year ago, matching the growth pace for all of 2004, and close to that for the rest of Europe.
Unemployment continues stubbornly just above 10%, with January and February at 10.2%. This is low historically for the country, but as employment has apparently stopped increasing, unemployment has stopped decreasing. It bottomed out at exactly 10.0% in September.
Workers, meantime, appear to be doing &quot;all right&quot;. Their average wages, which were published yesterday, were SIT179.7 in February (SIT=Slovenian Tolars), after social security and income tax withholding. This marks a 2.7% real advance from February 2005, allowing for the 2.1% CPI inflation over the period. Real earnings in the rest of Europe were up just 0.4% in 2005, measured by wages and salaries for the EU-25 calculated by Eurostat.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060419f.jpg" width="353">
The average wage indicator hints at general gains in the Slovenian economy; GDP per capita real growth (in fixed 1995 prices) was 4.1% last year. According to the CIA World Factbook, Slovenia is the first transition economy to change from borrower to donor status at the World Bank, and its currency, presently pegged to the euro, is due to switch to the euro next year. All is not completely well, though, as the population has been almost completely flat since 1999; there was net out-migration during the break-up of Yugoslavia, then a modest recovery from 1999 to 2002, but almost no change since. And as we note here, the economy may be showing signs of plateauing after a nice run during 2005.
Country-source data on Slovenia are found in Haver&#39;s EMERGECW database. Since the country joined the European Union in 2004, data generated by Eurostat are also found in the EUROSTAT database. The CIA&#39;s helpful information on the general characteristics of the country are found <a href="http://www.cia.gov/cia/publications/factbook/geos/si.html">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/EMERGECW/@E7/@E7.HTM">Slovenia</a></th>
<th scope="col">Feb 2006</th>
<th scope="col">Jan 2006</th>
<th scope="col">Feb 2005</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Employment (SA, Thous.)</td>
<td>816.2</td>
<td>816.6</td>
<td>809.6</td>
<td>813.1</td>
<td>807.5</td>
<td>801.4</td>
</tr>
<tr>
<td class="firstcol">% Change (Mo/Mo &amp; Yr/Yr)</td>
<td>-0.0</td>
<td>0.0</td>
<td>(yr/yr) 0.8</td>
<td>0.7</td>
<td>0.8</td>
<td>-0.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate (SA, %)</td>
<td>10.2</td>
<td>10.2</td>
<td>10.1</td>
<td>10.1</td>
<td>10.6</td>
<td>11.2</td>
</tr>
<tr>
<td class="firstcol">Average Net Wages &nbsp; (Thous. Tolars)</td>
<td>179.7</td>
<td>179.3</td>
<td>171.4</td>
<td>177.1</td>
<td>168.2</td>
<td>159.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&quot;Real&quot; % Change*&nbsp; &nbsp; (Mo/Mo &amp; Yr/Yr)</td>
<td>-0.2</td>
<td>2.0</td>
<td>(yr/yr) 2.7</td>
<td>2.7</td>
<td>2.1</td>
<td>1.8</td>
</tr>
</tbody>
</table>
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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060418h.jpg" width="353">
The housing market in England and Wales is showing improvement. The RICS (Royal Institute of Chartered Surveyors) survey of the housing market shows that although the pace has slackened, house prices continue to rise and expectations of price increases are becoming stronger as can be seen in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060418i.jpg" width="353">
The RICS survey, which was released today is an excellent source of information on many aspects of the housing market in England and Wales. It is found in Haver&#39;s UK data base and in INTSRVYS-G10+ Country Surveys.
There are data on the average units sold and the average stock of units held per chartered surveyor and the relation of sales to stocks. The average units sold has improved and in March was 16.4% above the units sold in March 2005. Over the same period the stock of units held has declined by 5.9%. The second chart shows the year over year percentage change in the average units sold and the average stock of units per chartered surveyor. Although we do not have the absolute levels of sales and stocks of housing units, the rising trend of sales and declining trend of stocks suggests an improving supply and demand situation.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060418j.jpg" width="353">
The same sort of relative improvement in the housing market can be seen in the year to year difference in the percent balances of new buyer enquiries and the new offerings by sellers. (See the third chart.) The year to year difference in the percent balance of new buyer enquiries has been positive since early 2005, while the year to year difference in the percent balance on new offering by sellers has been negative.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/@U4/@U409/@U409.HTM">England and Wales: RICS Survey</a></th>
<th scope="col">Mar 06</th>
<th scope="col">Feb 06</th>
<th scope="col">Mar 05</th>
<th scope="col">M/M % </th>
<th scope="col">Y/Y %</th>
<th scope="col">2004</th>
<th scope="col">2003&nbsp;</th>
<th scope="col">2002&nbsp;&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Units</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Average Stock per Surveyor</td>
<td>72.2</td>
<td>71.7</td>
<td>76.7</td>
<td>0.70</td>
<td>-5.87</td>
<td>75.8</td>
<td>64.1</td>
<td>70.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Sales per Surveyor</td>
<td>25.5</td>
<td>24.9</td>
<td>21.9</td>
<td>2.41</td>
<td>16.44</td>
<td>22.5</td>
<td>28.5</td>
<td>30.7</td>
</tr>
<tr>
<td class="firstcol">Percent Balance</td>
<td>Mar 06</td>
<td>Feb 06</td>
<td>Mar 05</td>
<td>M/M dif </td>
<td>Y/Y dif</td>
<td>2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr class="odd">
<td class="firstcol">Actual House Prices&nbsp;</td>
<td>11</td>
<td>10</td>
<td>-7</td>
<td>1</td>
<td>18</td>
<td>6</td>
<td>-12</td>
<td>-5</td>
</tr>
<tr>
<td class="firstcol">Expected House Prices</td>
<td>27</td>
<td>24&nbsp;</td>
<td>-28&nbsp;</td>
<td>3&nbsp;</td>
<td>55&nbsp;</td>
<td>-8&nbsp;</td>
<td>4&nbsp;</td>
<td>3&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Expected Sales next 3 months</td>
<td>28</td>
<td>24</td>
<td>24</td>
<td>4</td>
<td>4</td>
<td>28</td>
<td>19</td>
<td>18</td>
</tr>
<tr>
<td class="firstcol">Newly Agreed Sales</td>
<td>17</td>
<td>12</td>
<td>-7</td>
<td>5</td>
<td>24</td>
<td>2</td>
<td>-9</td>
<td>-2</td>
</tr>
<tr class="odd">
<td class="firstcol">New Buyer Enquiries</td>
<td>11</td>
<td>10</td>
<td>-7</td>
<td>1</td>
<td>18</td>
<td>6</td>
<td>-12</td>
<td>-5</td>
</tr>
<tr>
<td class="firstcol">New Stock</td>
<td>13</td>
<td>8</td>
<td>18</td>
<td>5</td>
<td>-5</td>
<td>11</td>
<td>10</td>
<td>8</td>
</tr>
</tbody>
</table>
</body>
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The housing market in England and Wales is showing improvement. The RICS (Royal Institute of Chartered Surveyors) survey of the housing market shows that although the pace has slackened, house prices continue to rise and expectations [...]

English and Welsh Housing Market Shows Improvement

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060418g.jpg" width="353">
Chain store sales jumped another 1.1% last week, according to the International Council of Shopping Centers (ICSC)-UBS survey, on top of the 1.8% rise which opened April.
The gains raised sales so far in April 1.3% above the March average which rose 0.7% from February.
During the last ten years there has been a 47% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060418f.jpg" width="353">
The leading indicator of chain store sales fell 0.3% (-0.2% y/y) after the prior week&#39;s 0.5% decline. The latest level was down 0.4% from the March average which rose 0.3% from February.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
Again the rise in store sales accompanied a jump in retail gasoline prices. The second consecutive ten cent w/w surge in gas to $2.78 per gallon (24.4% y/y) raised the April average to $2.69. In spot market trading yesterday gasoline prices easily crested two dollars and rose to $2.14.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">04/15/06</th>
<th scope="col">04/08/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>475.6</td>
<td>470.6</td>
<td>4.0%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


</html>

Chain store sales jumped another 1.1% last week, according to the International Council of Shopping Centers (ICSC)-UBS survey, on top of the 1.8% rise which opened April. The gains raised sales so far in April 1.3% above the March [...]

Chain Store Sales & Gasoline Prices Strong Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060418e.jpg" width="353">
The April level of the National Association of Home Builders&#39; (NAHB) Composite Housing Market Index fell 7.4% and the latest level is down 30.6% since the high last June. It also was the lowest level since November 2001.
During the last twenty years there has been an 82% correlation between the y/y change in the annual composite index and the change in single family housing starts and there has been a 75% correlation between the current sales index and new single family home sales.
The April index for current sales of single family homes dropped 8.5% (-26.0% y/y) and the index for sales in six months dropped 6.5% (-23.7% y/y).
An index of the traffic of prospective home buyers was at the lowest level since early 2003.
The NAHB index is a diffusion index based on a survey of builders. Readings above 50 signal that more builders view conditions as good than poor.
Visit the <a href="http://www.nahb.org">National Association of Home Builders</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM">Nat&#39;l Association of Home Builders</a> </th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">&nbsp;April &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Housing Market Index</td>
<td>50</td>
<td>54</td>
<td>67</td>
<td>67</td>
<td>68</td>
<td>64</td>
</tr>
</tbody>
</table>
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The April level of the National Association of Home Builders' (NAHB) Composite Housing Market Index fell 7.4% and the latest level is down 30.6% since the high last June. It also was the lowest level since November 2001. During the [...]

NAHB Housing Market Index Lowest Since Late 2001

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060418d.jpg" width="353">
Housing starts last month fell another 7.8% m/m to 1.960M units following the like decline during February that was little revised. The drop by far exceeded Consensus expectations for a decline to 2.04M starts.
Lower single-family starts led the weakness last month with a 12.0% drop to 1.591M, the lowest level in one year. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060418c.jpg" width="353">
Single family housing starts in the West were notably weak and registered a 19.4% (-5.6% y/y) decline to one of the lowest levels in the last two years. In the Midwest single family starts also fell sharply by 19.6% (-22.0% y/y). In the South fell hard for the second month, by 7.0%, but remained up 17.3% y/y while in Northeast starts slipped a moderate 2.7% (+4.4% y/y).
Multi family starts made up half of the prior month&#39;s decline with a 15.7% increase into the middle of the range of the last two and one half years.
Building permits fell for the second consecutive month and single family permits fell hard again, by 6.9% (-0.6% y/y) to the lowest level since late 2003.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E901/@E90101/@E90101.HTM">Housing Starts (000s, AR)</a> </th>
<th scope="col">Mar</th>
<th scope="col">Feb</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>1,960</td>
<td>2,126</td>
<td>6.9%</td>
<td>2,072</td>
<td>1,950</td>
<td>1,854</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,591</td>
<td>1,807</td>
<td>2.6%</td>
<td>1,716</td>
<td>1,604</td>
<td>1,505</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-family</td>
<td>369</td>
<td>319</td>
<td>30.4%</td>
<td>355</td>
<td>345</td>
<td>349</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>2,059</td>
<td>2,179</td>
<td>1.9%</td>
<td>2,122</td>
<td>2,058</td>
<td>1,8 88</td>
</tr>
</tbody>
</table>
</body>
</html>

Housing starts last month fell another 7.8% m/m to 1.960M units following the like decline during February that was little revised. The drop by far exceeded Consensus expectations for a decline to 2.04M starts. Lower single-family [...]

Housing Starts Down More Than Expected

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Sandy Batten

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Total retail sales rose a larger-than-expected 1.7% m/m (+4.0% y/y) in March following an upwardly revised 0.7% m/m gain in February (previously +0.6% m/m) in February, according to data from the U.S. Census Bureau. The Action Economics Forecast Survey looked for a 1.4% m/m increase. Excluding autos, other sales soared 1.9% m/m (+5.5% y/y) in March after an upwardly revised 0.7% monthly gain in February (previously +0.5% m/m). The Action Economics Forecast Survey looked for a 1.4% m/m increase in sales excluding autos. The March increase in total sales was the largest monthly increase since last March while the March jump in ex-auto sales was the largest monthly gain since January 2023.

As expected, a 15.5% m/m surge in sales at gasoline stations, largely reflecting a previously reported 21.2% m/m jump in retail gasoline prices, accounted for much of the monthly increase in both overall and ex-auto sales in March. However, sales were solid even without gasoline sales. Total sales excluding gasoline rose 0.6% in March versus a 0.7% monthly gain in February. Sales excluding both autos and gasoline increased 0.6% m/m in March, the same rise as in February. Forecasters expected only a 0.2% m/m increase in sales ex both autos and gasoline.

The control group of sales (total sales excluding food services, autos, gasoline and building materials that the BEA uses to construct PCE in the national accounts) posted another solid increase in March, rising 0.7% m/m following an upwardly revised 0.6% monthly increase in February (previously +0.5% m/m). For all of Q1, control group sales were up 1.2% q/q, up from a 0.7% quarterly gain in Q4. This points to a somewhat surprising pickup in household spending growth when Q1 GDP is reported on April 30. Many analysts had feared that the sharp rise in gasoline prices would put significant stress on household finances and thereby slow spending. A possible explanation for the recent resilience of sales is larger income tax refunds this year owing to the OBBBA which reduced taxes during last year while the withholding tables were not adjusted until this year (resulting in more over-withholding last year).

Sales across major sectors generally posted solid gains in March. Auto sales rose 0.5% m/m on top of a 1.0% m/m increase in February. Furniture and appliance sales jumped 1.6%, the third consecutive monthly gain and the largest since December 2024. General merchandise store sales jumped 1.0% m/m, their largest monthly gain since April 2023. Nonstore retail sales increased 1.0% m/m in March, their third consecutive month with an increase of 1% or more. Building material and garden supply store sales rose 0.7% m/m in March, their fifth consecutive monthly increase. Sales at food and beverage stores increased 0.7% m/m in March, their first monthly gain in three months. By contrast, clothing sales were unchanged following a 2.8% monthly jump in February. Sales at sporting goods, book and music stores were also unchanged in March after a 0.7% monthly rise in February. Eating out sales edged up 0.1% m/m in March following a 0.5% m/m increase in February. The only major category posting a monthly decline in March was “miscellaneous” sales which fell 0.9% m/m but this was after 2.2% m/m gains in both January and February.

Retail sales data can be found in Haver’s **USECON** database. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- Total sales jumped 1.7% m/m in March with small upward revisions to January and February.
- Gasoline sales surged 15.5% m/m in March, but even excluding that increase, the remainder of retail sales rose 0.6% m/m.
- Excluding autos, sales soared 1.9% m/m in March with small upward revisions to January and February.
- Sales of the retail control group that is used to construct PCE rose 0.7% m/m in March and 1.2% q/q for all of Q1.

U.S. Retail Sales Jumped in March only Partly Due to Surging Gasoline Prices

Winnie Tapasanun

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The Pending Home Sales Index, a forward-looking measure of home sales based on contract signings, rose 1.5% m/m to 73.7 in March following an upwardly revised 2.5% gain in February (+1.8% initially) and a 1.0% decline in January (unrevised), according to the National Association of Realtors (NAR). March marked the second straight m/m rise and the highest index level since November (77.2). The year-on-year rate was -1.1% in March, the fourth consecutive negative y/y reading, compared to -0.1% in February and -2.1% in March 2025. The index had fallen 41.1% since its October 2021 high of 125.1.

The m/m rise in March pending home sales coincided with an increase in the average 30-year fixed mortgage rate to a three-month-high 6.18% in March after a 6-bps decline to 6.05% in February. These rates, while below a peak of 7.62% in October 2023, had remained above a low of 5.22% in August 2022 and more than double a record-low 2.68% in December 2020.

By region, March pending home sales showed a mixed performance. Sales in the Northeast rebounded 4.4% (-6.5% y/y) in March, the first m/m increase since November, after a 2.6% decrease in February. Sales in the South rose 3.9% (2.3% y/y) following a 3.5% February rise and two successive m/m declines. Sales in the West dropped 2.6% (-1.7% y/y) after a 0.9% February increase, and sales in the Midwest fell 1.3% (-3.1% y/y) after a 5.5% February gain; both regions declined m/m for the first time since December.

The pending home sales index measures sales at the time the contract for the purchase of an existing home is signed, similar to the Census Bureau's new home sales data. In contrast, the National Association of Realtors' existing home sales data are recorded when the sale is closed, which is usually a couple of months after the sales contract has been signed. In developing the pending home sales index, the NAR found that the level of monthly sales contract activity leads the level of closed existing home sales by about two months.

The series dates back to 2001 and are available in Haver's **PREALTOR** database. Weekly mortgage interest rates from the Mortgage Bankers Association can be found in the **WEEKLY** database.

- PHSI +1.5% m/m (-1.1% y/y) to 73.7 in Mar., highest level since Nov.
- Home sales m/m up in the Northeast (+4.4%) and South (+3.9%); down in the Midwest (-1.3%) and West (-2.6%).
- Home sales y/y down in the Northeast (-6.5%), Midwest (-3.1%), and West (-1.7%); up in the South (+2.3%).

U.S. Pending Home Sales Up for Second Consecutive Month in March

Robert Brusca

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The overarching survey indicator for March stepped up despite enhanced global challenges. The March headline index rose to 99.3 from 98 in both January and February.

The March level of the headline compares to a 12-month average of 97.2. Nearly all the components in March are above their 12-month averages. The exception is the output change, which is substantially weaker than its 12-month average. Expected production, at 3.1 in March, is just a tick below its 12 month average of 3.2. Finally, expected employment in March is tied with its 12-month average.

In addition, only 3 readings weaker month-to-month in March were output change, expected production, and expected employment.

On the month, output change is a weak reading, falling by 3.5 points month-to-month; it may be the clearest example of the report showing weakness ahead, affected by upcoming global issues related to the war and rising oil and energy prices.

In addition to output change, expected production slipped to 3.1 in March from 4.8 in February. There was also a step back in expected employment, a modest one to 0.8 in March from 1.0 in February.

But order books showed a 10.2 reading in March, up from 5.6 in February. Changes in new foreign orders and total orders both showed more strength in March than in February, with foreign orders at 5.5 in March compared to 5.2 in February. The change in total orders, at 10.2 in March, was much stronger than 5.6 in February. Inventories registered 0.6 in March, up from -0.3 in February.

However, capacity space is being used up as capacity use rose to 77.0 in March from 76.6 in February.

The employment metric at 2.6 in March was much stronger than its zero reading in February.

On balance, the components indicate the sector is moving ahead as the headline gain suggests in March. But the major question mark is probably the strength in orders—which we take to be forward-looking compared to the setback in output change.

The index in March has a 64.1 percentile standing. Only three components in March ranked below their respective 50% marks (below their medians). The strongest readings generated standings in the 90th and mid-80th-percentile levels. These included finished inventories, the change in total orders, and order books. The lagging components, below their median values, were output change, expected production, and capacity utilization.

The French industrial readings are surprising for their resilience.

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France

Bank of France Survey Advances in March

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The German PPI rose by 2.4% month-to-month in March. That was, of course, boosted by oil prices as Brent crude soared, gaining 46.9% month-over-month (yikes!). However, very little of that got into German ex-energy prices, which did rise, but by only 0.4%. Still, do not be fooled by that ‘only.’ That 0.4% rise is the largest rise of that magnitude since February 2023—a period of about 2¼ years. So be wary of what might be in train here; 0.4% does not seem so large, but it annualizes to about a 5% pace.

In addition, 12 months to six months to three months, the headline PPI is accelerating—from a 12-month drop, to a well-behaved 2.1% pace of expansion over six months, and then to an elevated 3.9% annual rate over three months.

The core PPI is a bit more copacetic, but it shows clear acceleration, rising from a 12-month pace of 1.3%, to a 1.8% pace over six months, and to 2.4% annualized over three months.

**Consumer prices in Germany**
The sky is not falling. So far, there is no evidence of inflation in consumer goods: the consumer goods index does not even rise over 12 months, six months, or three months—though it is flat over three months. Investment goods, by contrast, show clear price acceleration, rising from 1.9% over 12 months, to 2.6% over six months, and to 4.1% over three months. Intermediate goods show the inflation wallop as prices rise by 1.5% over 12 months, to a 5.1% pace over six months, and at an 8.1% annual rate pace over three months. That annualized intermediate goods gain is something to watch. It is driven by oil, but other commodities and goods are caught up in supply chain woes as well.

For reference, the headline CPI shows acceleration, rising from a 12-month pace of 2.7% to a 5% annualized rate over three months. The ex-energy CPI, however, remains subdued, rising 2.3% over 12 month and at a more modest 2% annualized pace over three months.

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**Global conditions will call the tune**
The Strait of Hormuz, once shut, was opened. Then, once open, it was again shut. So, we are back at square one with the Trump deadline on Tuesday fast approaching. Soon something will have to give, and that something will affect oil, oil prices, and inflation. Conditions in the Strait and in the oil market globally are distorted by warfare and the threat of it.

Oil is an extremely important commodity and that is doubly so in Europe where nations have still not fully adjusted to the loss of the Russian pipelines.

But fertilizer and helium are two other commodities reported to be put in short supply because of the closing of the Strait. Iran is trying to gain a toehold here for leverage and survival—and to be able to claim victory; meanwhile, they have lost nearly all their military prowess, but they retain the means to enforce their policies on the domestic population—at least for now.

Trump has been declaring that they gave him everything he asked for, but then they close the strait and the U.S. kept its blockage of Iran’s ports in place. There is still a lot going on here. Despite the rhetoric, there is a lot that is unsettled and not agreed to, and a lot that could still go wrong or escalate. This puts both inflation and growth outlooks in jeopardy.

Germany

German PPI Takes Partial Flight

Tian Yong Woon

In this week’s Letter, we take stock of the latest economic data from China, assessing what it tells us about the outlook for growth and policy. We also continue our coverage of the Middle East conflict, focusing on its broader implications for Asia through energy markets, trade routes, and regional risk sentiment.On China, while Q1 GDP data exceeded expectations, putting the economy on a firm footing to meet its annual growth target (chart 1), a closer look at the underlying monthly indicators suggests the headline resilience may be masking a more uneven underlying picture (chart 2). 

As for the Middle East, the latest round of regional March CPI prints largely confirms the initial pass-through from higher oil prices to consumer inflation. If energy prices remain elevated, second-round effects will likely become more evident in the coming months (chart 3). Turning to the Strait of Hormuz, shipping data point to a gradual recovery in flows. However, conflicting signals on the strait’s status—alongside renewed US–Iran tensions—continue to cloud the outlook for a sustained normalization in global oil supply (chart 4). In response, global players have begun to adapt, including rerouting shipments via the longer but safer Cape of Good Hope route, and exploring alternative export channels through Red Sea ports, even though these remain exposed to regional risks (chart 5). Finally, the conflict has prompted a reassessment of the global outlook. In its latest World Economic Outlook, the IMF delivered broad-based growth downgrades across economies, with only a handful of exceptions (chart 6).

**China**
China released a raft of data late last week, with March figures particularly pertinent as they capture the initial effects of the Middle East conflict that erupted in late February. Notably, Q1 GDP exceeded expectations, with the economy expanding 5% y/y despite incorporating March data (chart 1). This suggests China has secured a firm early footing toward its 4.5%–5% growth target for the year—a slight step down from last year’s “about 5%” goal. But a closer look at the March data reveals several nuances. On the external front, export growth slowed sharply year-to-date, falling behind import growth, thereby dragging on trade balance growth. 

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On a more downbeat note, growth in retail sales, industrial production, and fixed asset investment all moderated in March (chart 2). While this may partly reflect spillovers from the Middle East conflict, it likely also points to underlying domestic factors, including the fading impact of earlier, possibly one-off, policy support measures. That said, not all signals point to deterioration. Industrial profits have shown signs of improvement, likely supported in part by authorities’ efforts to curb intense price competition, also termed as “involution”, amid excess supply. This has contributed to a gradual easing in producer price deflation, which is beginning to feed through to a modest improvement in consumer inflation.

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**The Middle East conflict – Impacts**
Among economies that have reported March CPI so far, chart 3 shows that Asian inflation prints have more often than not come in higher y/y than in February. While specific domestic factors are also at play, the uptick has largely coincided with a rebound in energy-related inflation, in line with the global price surge following the Middle East supply shock. Given the pervasive role of energy as a key input across economic activity—from manufacturing to trade—what we are observing thus far likely reflects primarily first-round effects. Should energy prices remain elevated, second-round effects are likely to emerge in subsequent inflation prints.

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Whether energy prices remain elevated in the near term ultimately hinges on the same factor that drove the initial surge: oil flows through the critical Strait of Hormuz. On that front, IMF data suggest shipping volumes have continued to edge higher, though recent headlines have kept crude prices volatile. For instance, earlier assurances by Iranian authorities that the strait was “fully open” triggered a sharp decline in crude oil prices. However, weekend reports of a renewed closure—alongside news that the US had seized an Iranian-flagged vessel—serve as a stark reminder that tensions remain elevated and that disruptions to oil flows may well be set to persist. 

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**The Middle East conflict – Considerations**
That said, the global response has not been passive. Economies have increasingly sought alternative energy sources and rerouted oil shipments via other channels. Over a longer horizon, both producers constrained by exports through the Strait of Hormuz and importers heavily reliant on the route are likely developing contingency plans to hedge against the risk of a prolonged disruption at this critical chokepoint. For instance, amid heightened geopolitical tensions in the Middle East, more shipments are being diverted along the longer—but relatively safer—route via the Cape of Good Hope, bypassing the region. At the same time, there has been growing consideration of redirecting exports through Red Sea ports by shifting flows away from Hormuz-linked terminals. However, these alternatives are not without limitations. They remain exposed to regional risks, while capacity constraints—particularly in existing pipeline infrastructure—mean they could not fully offset a disruption to flows through the strait.

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Lastly, we turn to the IMF’s latest World Economic Outlook, released last week. Reflecting the growth-dampening effects of the Middle East crisis, the IMF downgraded its real GDP forecasts for most economies, resulting in a modest downward revision to global growth overall. Across Asian and major non-Asian economies (chart 6), only India and Japan saw upgrades, likely supported by offsetting domestic or structural drivers. European economies registered the steepest downgrades, while China and the US, though also revised lower, appear relatively more insulated. Importantly, these projections assume the conflict remains contained in duration, intensity, and scope, and begins to fade by mid-year. Should it persist or escalate beyond that, further downside risks to growth are likely to materialize.

Economy in Brief

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