We’ll discover next week whether the world economy is stabilising after its recent weakness. One important sign will come in Monday’s German industrial production data for January, which might show that output has levelled off after dropping 4.6 per cent between May and December as a result of troubles in the car industry and US-China trade tensions. Eurozone industrial production data on Wednesday should show a similar pattern. Even this, though, might well be 3 per cent lower this January than last.
We might also see signs of a recovery in UK GDP after December’s drop, with industrial production and construction output recovering a little. However, this would still mean that GDP grew by only around 0.2 per cent in the past three months.
One reason for such weakness is a drop in exports. Trade figures on Tuesday are likely to show that these have fallen in recent months and that the deficit in goods remains large, at around £12bn in January. This is unlikely to make a significant contribution to GDP growth in coming months.
The US picture should be better, though. Retail sales should show a recovery in January and February from the fall in December, which was caused in part by the government shutdown. And Friday’s figures should show that industrial production recovered after January’s drop; that too was probably due to the shutdown.
Figures from China, however, might be troubling. These could show that the M1 measure of the money stock has barely grown at all in the past 12 months – which could be the slowest growth since at least 2000. This matters as monetary growth has been a good lead indicator of output growth and commodity prices in recent years.
We might, however, get some good news from the US Treasury on Friday. They could report that foreign investors have been big net sellers of US equities in the past 12 months. For the past 20 years, this has been a great lead indicator of annual stock market returns because it’s a measure of investor sentiment – selling betokens pessimism and buying optimism. The figures should therefore tell us that a lot of bad news about the world economy is already discounted by equity prices, which is a reason to think that even average news this year will push them up.
