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Next week's economics: 28 Jan - 1 Feb

Economic growth is slowing in both the eurozone and US, next week's figures could show
January 24, 2019

Next week could bring evidence of a slowdown in global growth.

In the eurozone, Thursday’s figures could show that GDP growth slowed in the fourth quarter to almost nothing, and that unemployment has now stopped falling.

In the US, GDP growth is also likely to have slowed, albeit more gently – from an annualised 3.4 per cent in the fourth quarter to around 3 per cent. The ISM survey on Friday could also show that manufacturing growth, while still reasonable, has slowed to its lowest rate since late 2016. The employment report might be more alarming, perhaps showing a fall in non-farm payrolls and rise in unemployment, but this will reflect the government shutdown rather than the underlying state of the economy. In fact, Tuesday’s report from the Conference Board could show that consumer confidence, while below October’s high, is still close to an 18-year high.

That said, S&P’s report on house prices might be a concern. It could show that prices have been flat since the summer. As the housing market is sometimes regarded as a lead indicator of the economy, some will be worried by this.

In this context, the UK might appear relatively healthy, with purchasing managers likely to report that the manufacturing sector is growing steadily. This, however, might owe something to companies stockpiling goods in anticipation of the risk of a disruptive Brexit. Bank of England figures might also show a slowdown in companies’ cash holdings and rise in borrowing, which would be consistent with a little inventory building.

The housing market might be a greater worry, though. In fact, it's possible that the Nationwide could report the first year-on-year fall in prices since 2012. To add to this picture, the Bank of England might also report a fall in mortgage approvals. This drop will be blamed on uncertainty about Brexit. But the market faces other problems, too, such as a lack of affordability and weak real wage growth.

We’ll also get some important readings on global inflation next week. In the eurozone, CPI data should show headline inflation around 1.5 per cent and the core rate (which excludes food and energy) around 1.1 per cent – much the same rate it has been for months. Combined with the weakness of the real economy, some will see this as a case for a relaxation of monetary policy – although the ECB is unlikely to heed such calls.

In the US, the attention will be on average earnings data on Friday. These have recently shown a slow rise in wage growth. It’s for this reason that the Fed is likely to say on Wednesday that interest rates will have to rise twice more later this year.