Next week’s figures will tell us whether there are signs of stabilisation in eurozone economies.
Last month, Germany’s Ifo survey and the National Bank of Belgium’s business confidence measure both rose slightly. Any confirmation of these developments next week will fuel hopes that the downturn in manufacturing might be almost over. Perhaps more important, though, will be flash purchasing managers’ surveys. Last month, these reported a big fall in manufacturing orders. Any repeat of that would be troubling – although this should be mitigated by signs that the much larger services sector is growing.
In the US, meanwhile, we should see signs of growth. Economists expect the US Bureau of Economic Analysis (BEA) to say on Friday that gross domestic product (GDP) grew at an annualised rate of around 2 per cent in the first quarter. That’s not bad, given that the government shutdown depressed activity. One complication, here, however, is that in recent years first-quarter GDP has appeared unduly weak because of difficulties in seasonally adjusting the data; the BEA says it has corrected this problem, but we’ll only be able to tell on Friday.
Other US numbers, though, should give some comfort. We should see a rise in durable goods orders, while sales of both new and existing homes should be sharply up since the winter.
We might also see signs of recovery in Japan, with industrial production rising for a second successive month in March, after slumping in January.
In the UK, the CBI should report that manufacturers expect to continue increasing output, thanks in part to decent export orders.
The personal sector, however, might not be so healthy. The CBI could report that retail sales were weak in early April, suggesting that households are using some of the recovery in real wages to reduce borrowing rather than go on a spending spree. And the Nationwide is likely to say that house prices are lower than they were at the end of last year. Uncertainty about Brexit is not the only reason for this: a lack of affordability and low income growth are also to blame – and these factors won’t disappear soon.
On Wednesday, the ONS is likely to say that public sector net borrowing in the last financial year was around £22.8bn, or just over 1 per cent of GDP. This means borrowing has fallen sharply since 2009-10. The decline, however, is unlikely to continue. It was the counterpart of increased borrowing by households – a trend that will cease soon. Negative real interest rates, however, mean that moderate government borrowing is entirely consistent with a trend decline in the ratio of public debt to GDP, and therefore no cause for concern.
