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Next week's economics: 19-23 August 2019

The weak the eurozone's economy is contributing to the UK's troubles, next week's numbers could show.
August 15, 2019

How weak is the eurozone economy? We’ll get some clues next week

Some will come from flash purchasing managers’ surveys. Last month, these showed manufacturing activity in the region shrinking at its fastest rate for almost six years, thanks to weakness in China due in part to the trade war and to troubles in the car industry. These are hitting Germany especially hard; Ifo’s survey last month showed manufacturing growth to be close to a 10-year low. The best we can hope for next month is a sign that the downturn is stabilising. In the context, the National Bank of Belgium’s measure of business confidence will also be worth watching to see whether it is climbing off the three-year low it hit last month; this has traditionally been well correlated with output in the eurozone generally.

We should, however, get better news from the services sector, where purchasing managers could show steady, but modest growth.

Overall, the numbers are likely to fuel hopes that the ECB might loosen monetary policy further next month – although many economists believe this would be too late.

The eurozone’s weakness is hitting the UK. The Confederation of British Industry (CBI) is likely to report that manufacturers’ order books are falling and that companies expect output to flatline over the next three months.

The UK’s difficulties aren’t of course only due to the eurozone’s weakness, and not just because Brexit uncertainty is depressing capital spending. The CBI is likely to report next week that retail sales have been very weak over the summer, despite signs of a pick-up in real wages. One reason for this is that some households are using higher wages to reduce borrowing and raise savings: the savings ratio has been very low in recent months and so some recovery in it would not be unusual.

We’ll also get a reminder next week that the housing market is still weak, with Rightmove likely to report that sellers’ asking prices have fallen slightly in the past 12 months. This isn’t a wholly bad thing, though: it suggests a greater realism on their part and hence an increased chance of a pick-up in sales in coming months – something the recent rise in mortgage approvals points to.

In the US, on the other hand, we should see signs of a stronger housing market, with sales of both new and existing homes likely to show strongly rising trends so far this year. This would be the result of high consumer confidence, low unemployment and low mortgage rates. Because activity is only around the same level as a year ago, however, it is not (yet) an obstacle to further cuts in US interest rates.