We’ll get evidence next week on whether the world economy is stabilising after its recent dip.
In the eurozone, flash purchasing managers' surveys could give a mixed signal. They could show that manufacturing is shrinking but that services growth has picked up slightly. Germany’s Ifo survey might confirm the gloomy picture for manufacturers. It could show that conditions for the sector are at their worst since 2010. We might, though, get slightly better news from Germany’s ZEW survey. It could show that economic optimism among finance professionals has edged up recently, although it remains far below its long-term average.
In the US, the Philadelphia Fed’s survey could show that manufacturing activity has weakened recently, although with optimism around its long-term average this might be only temporary.
Such weakness is hitting the UK. The Confederation of British Industry (CBI) is likely to report that a faltering in export orders has contributed to a reduction in companies’ output expectations for the next few months.
There is, though, an upside here. The weak global economy is helping to reduce commodity prices and hence inflation. The Office for National Statistics could say on Tuesday that manufacturing output price inflation is around 2 per cent, its lowest rate since 2016, and that consumer price inflation is below its target at around 1.8 per cent.
This drop in inflation might have contributed to a strengthening in retail sales. Although official figures could show that these dipped in February, this would follow a strong January. In the last three months, volumes could be up by a healthy 0.6 per cent compared with the previous three months. Retailers’ troubles are about margins more than volumes.
Tuesday’s labour market figures are likely to show that unemployment is more or less levelling off at just under 1.4m, or 4 per cent of the workforce – although there are another 1.8m out of the labourforce who want a job. They could also show that wage inflation has fallen. The three-month average rate could drop from 3.4 per cent to around 3.2 per cent. A benign reason for this is that price inflation has fallen, so workers need lower pay rises to compensate for the rising cost of living. A less benign factor is that weak productivity growth means that real wages cannot rise very much. Tuesday’s figures could show that this is continuing. They could show little change in hours worked in the three months to January, implying only a very slight rise in productivity.
We’ll see how the US Federal Reserve and Bank of England respond to all this with policy announcements next week. Both will leave rates unchanged, although the Fed will probably hint at rises later this year.
