The eurozone economy has slowed markedly, next week’s numbers could show
Purchasing managers should confirm the flash survey, which showed that growth in the services sector fell to a 16-month low in May. This should be corroborated by official retail sales data, which could show that sales volumes in April were only around 0.2 per cent higher than in the fourth quarter – which suggests a sharp slowdown since last year.
Weakness isn’t confined to services, though. Although official German data should show pick-ups in both industrial production and factory orders in April, both are likely to be below Q4’s levels.
Against this backdrop, UK manufacturing might be holding up well. Official numbers on Friday should show that manufacturing output rose in April, having been slightly disrupted by March’s bad weather. This should be consistent with ongoing, albeit modest, growth. However, purchasing managers are likely to report only weak growth in construction and slower growth in services than we saw in the autumn and winter.
On Friday the NIESR is likely to say that real GDP grew by around 0.2 per cent in the three months to May. This is slightly better than earlier this year, but still weaker than last year. And it means GDP per person is barely growing at all. Economists’ forecasts in December of 1.4 per cent growth this year might even prove to have been too optimistic.
We’ll also get news of the housing market. Last month the Halifax reported a shocking 3.1 per cent fall in house prices in April. Economists expect that to be partly reversed, leaving annual house price inflation at around 2.5 per cent – implying prices are more or less flat in real terms.
The RICS’s survey might be mixed. It could report falls in prices, especially in London. However, it might also confirm last month’s finding that demand has stopped falling. And estate agents might say that they expect very moderate increases in prices over the next 12 months.
Finally, the Bank of England will publish its latest survey of households’ inflation expectations. This might show a small fall in expected inflation, on the back of a drop in actual inflation. This would be one more reason (alongside stagnant productivity, hidden unemployment and a lack of bargaining power) to expect wage inflation not to rise very much in coming months.
