Next week's economics: Feb 18 - 22

The euro area might finally be pulling out of recession, next week's numbers could show.

Surveys on Thursday are expected to show that purchasing managers' indices for manufacturing and services in the region are at 12-month highs - although this is still consistent with activity contracting. Business surveys in Germany are likely to be even stronger. The Ifo survey could show a fourth successive rise in companies' assessment of business conditions, and the ZEW survey is likely to show that finance professionals' expectations for the economy have improved a lot in the past three months.

This improvement should help the UK. The CBI is likely to report on Thursday that manufacturers expect to increase output in the next three months, thanks in part to better export orders.

A more headline-grabbing indicator of the UK's improving fortunes will come in Wednesday's figures, which are likely to show another fall in unemployment. This, though, will merely prolong the puzzle of why employment has risen so much recently while output has not. One reason - although not a complete explanation - is that workers are pricing themselves into jobs. Wednesday's numbers will also show that wages have risen by only around 1.5 per cent in the past 12 months, implying a fall in real terms.

The fall in unemployment is not, however, doing much good to the public finances. Thursday's figures should show that the government had a big surplus in January, thanks to the usual big inflow of income and corporation tax. However, the current budget balance (which is less affected by one-offs than the PSNB), at around £83bn, is likely to have been around £8bn higher in the April-January period than in the same period of last year. This will tell us that the private sector is still running a big financial surplus, and saving more than it is investing. Government borrowing will fall when and only when this surplus falls.

We'll see on Wednesday what the MPC makes of the state of the economy, when it releases minutes of its last meeting. It's possible that at least one member voted for more QE, but the committee might have been sceptical about how effective such a move would be.

In the US, we'll get mixed news on activity. Sales of pre-owned homes probably rose in January, continuing their upward trend; they're likely to have been over 8 per cent up on last January. However, the Philadelphia Fed’s survey could point to continued weakness in the manufacturing sector.

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