The world economy is still growing nicely, next week’s figures should say.
Although official eurozone data might show that industrial production fell a little in December, this would leave output 1 per cent up in the quarter. And such growth might well continue. On Tuesday, ZEW’s survey of finance professionals could show that optimism about the German economy is at its highest level since July 2015.
In the US we should also see rises in both retail sales and industrial production in January. And the New York Fed’s survey should show that manufacturers’ optimism is very high. All this will support economists’ belief that real GDP could grow by around 3 per cent this year, the fastest since before the financial crisis.
Despite the stock market’s concerns, we’ll see no evidence next week that this expansion will be blocked by rising inflation. Wednesday’s figures should show that core consumer prices index (CPI) inflation in the US is around 1.8 per cent, much the same rate it’s been since April.
UK inflation data, however, might be less impressive. CPI inflation might be stuck around 3 per cent, thanks in part to a rise in petrol prices. And producer output price inflation might also be stuck around 3 per cent. It’s likely, however, that inflation will fall this year as last year’s rises in import prices drop out of the data. In fact, if sterling continues to firm up and productivity continues to grow, the drop might be significant.
We should, though, get some comforting news from the high street. Official figures could show a rise in retail sales in January after a big drop in December – the latter was probably due in part to poor weather and to sales being pulled forward into November by ‘Black Friday’. Comparing the last three months with the previous three, sales should be up by around 0.3 per cent.
Investors might, though, get two things to worry about next week.
One is that the People’s Bank of China might report a slowdown in money stock growth. Previous slowdowns have led to slower growth in the Chinese economy and to drops in commodity prices, with a lag of a few months. Holders of mining and emerging markets stocks especially should watch out for this.
The other is that the US Treasury could report a rise in foreign buying of US equities in recent months. In the past, this has been a lead indicator of poorer returns on global equities.
