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Next week's economics: 6-10 January 2020

The UK is on the brink of recession, but there might be signs of the eurozone bottoming out, next week's numbers could show
January 2, 2020

The UK is near recession, next week’s numbers could show. Purchasing managers’ final survey should confirm that service sector output fell last month.

In part, this might be a temporary response to heightened political uncertainty. Figures on Wednesday, though, will remind us of a longer-term problem. The ONS is likely to say that labour productivity rose by 0.4 per cent in the third quarter. This would mean it is down from two years ago, and has grown only 0.2 per cent per year since the pre-crisis peak in 2007 – which is some of the weakest long-term growth we’ve seen since the start of the Industrial Revolution. This means that underlying trend growth is very weak. Which matters enormously: weak trend growth should mean slow growth in dividends, which in turn implies that apparently attractive equity valuations are in fact merely compensation for a lack of future growth.

In the eurozone, purchasing managers should confirm that growth in the services sector has hit a four-month high. Other figures will be scrutinised for any evidence of a bottoming out of the industrial recession. Economists hope to see German industrial production recover after October’s shocking 1.7 per cent drop – although this would still leave output 4 per cent down year-on-year. And we might see signs of stability in French and Italian output, although in both countries production will be lower than it was a year ago.

The region might also see a drop in inflation last month, from November’s core rate of 1.4 per cent. One reason for this is that there is plenty of spare capacity. Other figures will show that the unemployment rate is stuck at around 7.5 per cent; the fact that this would be an 11-year low reminds us that the region has a chronic problem. This is especially true of youth unemployment: 15.6 per cent of under-25s are out of work.

Back in the UK, the Halifax is likely to report that house prices rose at an annual rate of around two per cent last year. This would be a slight pick-up on the annual growth rates we saw in the summer. This recovery, however, owes more to a lack of supply than to any recovery in demand.