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Next week's economics: 22-26 May

Next week's economics: 22-26 May

The eurozone economy is doing well, but the UK isn't sharing in its success, next week's numbers could show.

Purchasing managers are likely to say on Tuesday that eurozone growth is at a six-year high, with both manufacturing and services doing well. This picture will be consistent with Germany's Ifo survey, which should also show growth there around a six-year high.

One caveat to this, though, could be that the strong growth is not expected to persist. The Ifo survey will probably show that business optimism isn't as strong as current trading conditions, a report likely to be confirmed by the National Bank of Belgium's business confidence survey on Thursday. This suggests growth might slow down soon, albeit only moderately so.

In the UK, meanwhile, the ONS's second estimate of GDP is expected to confirm the initial estimate of 0.3 per cent growth in the first quarter (Q1). What's new will be the income and expenditure breakdown.

The former is likely to show little change in the share of profits in GDP, suggesting that the productivity slowdown is hurting employers and employees roughly equally.

The latter is likely to show that net exports and consumer spending both subtracted slightly from GDP: other data show both fell in Q1. This suggests that growth will have come from government and investment spending. The sustainability of both is, however, doubtful. The government is planning a squeeze on public spending in coming years, and the latest CBI survey shows that investment intentions are weak.

This suggests that if growth is to pick up, we need an upturn in consumer spending. The CBI's survey of retailers on Tuesday will tell us if we're getting this. It's possible that we're not: higher inflation might well squeeze consumer spending even if real wages do rise.

In the US, the main data might look weak: the Bureau of Economic Analysis is expected to confirm that real GDP grew at an annualised rate of only 0.7 per cent in Q1. Few, however, are much worried by this. In the past three years, growth has been weak in the first quarter and has rebounded thereafter. Some indicators next week might point to this happening again. Friday's numbers should show a rise in durable goods orders. And figures on Tuesday and Wednesday should show that sales of both new and existing homes are trending upwards by enough to support growth, but not enough to suggest that the housing market is overheating.

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By Chris Dillow,
18 May 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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