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Next week's economics: Jan 9 - 13

Next week's economics: Jan 9 - 13

We'll find out next week whether the UK economy is slowing down as economists expect, when the NIESR releases its estimate of GDP growth in the fourth quarter. This could show that growth slowed slightly to 0.4 per cent, after 0.6 per cent in Q3.

One reason for this is innocuous and temporary. Official figures on Wednesday are likely to show that output of North Sea oil has fallen sharply as rigs have been closed for maintenance work. Production should, though, recover in 2017.

This, though, isn't all. Those same figures are likely to show that although manufacturing output rose in November, this only reversed October's fall with the result that output in Q4 is likely to be not much changed from Q3. And other figures on Wednesday could show that construction output was lower in October and November than in Q3, too. This would be consistent with the idea that uncertainty about Brexit is hitting spending on longer-lived assets especially hard.

Trade figures on Wednesday will also give us a reason to fear a slowdown. These might show a widening in the deficit in November after a surprise narrowing in October when import volumes fell sharply. More significantly, however, they are likely to show that export prices (in sterling terms) have risen sharply since June. This would suggest that many exporters have responded to sterling's fall by keeping foreign currency prices unchanged and so have increased their mark-ups. While this is good news for profits in the near term, it means that export volumes won't increase much in the longer term: if foreign currency prices don't fall, foreigners won't buy more UK goods.

In fact, other figures next week will show a second reason to be pessimistic about UK exports. They are likely to show that eurozone demand is growing only moderately. Official figures on Thursday should show that industrial production in the region rose slightly in November after falling in October. This would be consistent with output rising by only around 0.3 per cent in Q4 as a whole, suggesting that the region's growth rate is stuck at around 1 per cent annualised. This points to only weak growth in demand for UK goods.

Things should, however, be brighter in the US. Retail sales figures there should show a small increase in December. This would be consistent with the overall economy growing well in Q4 after good growth in Q3.

 

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By Chris Dillow,
05 January 2017

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Chris Dillow

Chris spent eight years as an economist with one of Japan's largest banks. Here, he provides insightful commentary on the latest economic news and data, along with thought-provoking articles about investor behaviour.

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