Join our community of smart investors

Next week's economics: 18-22 Feb

The euro zone economy is struggling and this is hurting the UK, next week's numbers could show.
February 14, 2019

How bad are economic conditions in the eurozone? We’ll find out next week. On Thursday flash purchasing managers' surveys are likely to show growth in the region little changed from last month, when it was at its slowest rate since mid-2013. Germany’s Ifo survey is also likely to show that output and confidence are both depressed, while the National Bank of Belgium could report that business confidence is at a 16-month low. Perhaps the only ray of hope is that Germany’s ZEW survey could show that optimism among finance professionals has stabilised in recent months, albeit at a low level.

This weakness is hitting the UK. The CBI is likely to say next week that manufacturers’ order books have levelled off – albeit at a high level – and that output is likely to grow at a slower rate in the next three months than it has recently.

The eurozone isn’t our only problem, though. The CBI is also likely to say next week that retail sales are still weak, although perhaps not as much so as last month.

Reflecting these developments, the Office for National Statistics (ONS) could report on Tuesday that unemployment has stopped falling, at just under 1.4m people or 4 per cent of the workforce – although there are also almost 1.9m people our of the labour market who want to work – and that overall hours worked have been more or less flat recently.

Despite this, the ONS could also say that wage inflation is edging up. It might be 3.5 per cent in the year to the last three months, which would be the fastest increase since before the 2008 crisis. Given that CPI inflation is falling and that productivity is stagnating, it is, however, doubtful that wage growth will continue to accelerate.

In the US, meanwhile, we’ll get mixed signals. The Philadelphia Fed should report that manufacturing activity is still growing nicely, if less so than last year, and that companies’ expectations for growth are around the average of the last seven years. On the other hand, the housing market is clearly cooling. Sales of existing homes are likely to be sharply down on a year ago. This isn’t merely because of uncertainty caused by the government shutdown; they were on a declining trend before that.

We’ll also get figures on the UK public finances next week. These should show a big surplus as income tax receipts came in in January. That would put borrowing for the year as a whole on course to meet the Office for Budget Responsibility (OBR) forecast of £25.5bn, or 1.2 per cent of GDP.