We’ll get important readings next week on the state of the eurozone economy – and they won’t be pretty.
Purchasing managers on Monday are likely to say that manufacturing activity is still shrinking – although perhaps at a slightly slower pace than recently – while the service sector is growing slowly but steadily. Net, this will be consistent with the economy just about avoiding recession. Then, on Tuesday, the National Bank of Belgium is likely to say that business confidence is near a three-year low. Germany’s Ifo survey might, however, be even worse. It could show manufacturing activity and business expectations in recessionary territory, near a 10-year low. The German economy is suffering more than others due to its high exposure to China and thus to the trade war.
We might, though, get a glimmer of hope from the ECB. It could report that the M1 measure of the money stock is accelerating. Historically, this has been a lead indicator of better economic growth, with a lag of a few months.
The UK is suffering due to the eurozone’s downturn. The CBI is likely to say next week that manufacturers expect output to stagnate in coming months, in part because of weaker external demand.
Exports, though, are not our only problem. The Confederation of British Industry could also report that retailers are having a terrible time – although its surveys have recently been weaker than official figures on high street activity. And research group GfK is likely to report that consumer confidence has slipped recently, despite the pick-up in real wages. This could be due to Brexit uncertainty, or it might be a sign that consumers don’t expect the recent strength of the labour market to last.
The US, however, is doing rather better. Durable goods orders on Friday should show another small rise, consistent with steady expansion. And the Conference Board could say on Tuesday that consumer confidence is close to an 18-year high. Reflecting this, the S&P is likely to report that house prices have risen significantly this year, reversing last month’s dip. All this should allay fears of an immediate recession.
