Is the eurozone economy recovering? We’ll get two important clues next week.
One will come from purchasing managers’ flash surveys on Thursday. Last month, these reported that the rate of decline in manufacturing is leveling off and that the services sector continued to grow slightly. The other will come from the National Bank of Belgium’s business confidence indicator, which has traditionally been a bellwether for the eurozone economy generally. Last month, it fell to a 17-month low. The recent acceleration in M1 growth suggests both should improve later this year. Whether there will be signs of this as soon as next week is, however, uncertain.
We might also see signs of decent growth in the US. Most significant here could be sales of new homes, which could show an upturn in recent months after weakening a lot last year, although sales of existing homes might remain weak. We should also see a small rise in durable goods orders.
In the UK, meanwhile, signals might be mixed. The Confederation of British Industry (CBI) could report that manufacturers’ output expectations have weakened recently, partly because ongoing Brexit uncertainty has depressed investment intentions.
Retail sales, however, might be brighter. Official figures could show that sales volumes in April stayed around March’s high levels, thanks in part to a late Easter and nicer weather. And if the CBI’s survey of retailers confirms last month’s expectations, it should report that sales also held up in early May, too.
But can sales can get much stronger? Other figures next week will give us some concern here. The Office for National Statistics might report that consumer price index (CPI) inflation rose slightly last month, to 2 per cent, thanks in part to higher petrol prices. Producer input price inflation might also rise, reflecting recent rises in commodity prices. The Bank of England thinks that this is not yet the start of a sustained rise in inflation, as lower gas and electricity costs might hold down the CPI. But it does suggest the fall in inflation is now over.
This matters. Last year’s drop in inflation raised real incomes, and lower inflation also has traditionally held down savings ratios. With inflation now stabilising, both these boosts to consumer spending will disappear. And with stagnant productivity likely to hold down real wages, this means retailers’ prospects will not improve in coming months.
