Next week will bring evidence on how much economic damage is being done by measures to contain the coronavirus.
Flash purchasing managers' surveys for the eurozone are likely to show falls in output of both services and manufacturing, with Italy especially badly hit. The National Bank of Belgium’s measure of business confidence and Germany’s Ifo index for manufacturing are both also likely to fall, having stabilised over the winter.
The problem is that the virus is hitting an economy that was already fragile. Thursday’s numbers from the European Central Bank will remind us of this. They are likely to show that annual growth in lending to the private sector and in the M1 measure of the money stock have both levelled off in recent months at around 3.4 and 8 per cent, respectively. Both are consistent with the region growing only slightly, even before the virus hit.
All this is having a knock-on effect onto the UK, where purchasing managers are also likely to report falling activity. This could be confirmed by the CBI survey that could show a reversal in the recent increase in manufacturers’ output expectations fuelled in part by lower export orders. Hopes of a post-Brexit recovery in activity have then been dashed, at least for now.
But has panic buying boosted overall retail sales? We’ll get a clue from Wednesday’s CBI report on sales in early March. Before the virus hit, however, retailers were braced for weak demand – and official figures on Thursday could show that sales volumes in February were below the summer’s levels.
We should, though, get better news from inflation. CPI inflation could drop from January’s 1.8 per cent thanks to a fall in oil prices. And producer price numbers should show there’s now inflation in the pipeline. Output prices should be lower than they were in July, and up only 1 per cent year on year, while input prices should be flat year on year. These figures won’t reflect the slump in oil prices in recent days, so there’s more disinflation to come.
An exception to this is the housing market. The Nationwide could report that house price inflation has accelerated recently, to around 2.4 per cent – its highest rate since July 2018. This, though, partly reflects a lack of stock on the market, not just increased demand.
In the US the main news could be a slowdown in the housing market, with both prices and sales of new homes having grown only very slowly in recent months. This is consistent with consumer confidence having levelled off (albeit at a high rate) before any impact from the coronavirus.
