We’ll see the impact of Covid-19 lockdowns on European economies in next week’s data – and they could show some record-breaking drops in economic activity. In the euro one, purchasing managers will report slumps in both manufacturing and services activity. This should be confirmed by Germany’s Ifo survey and by the National Bank of Belgium’s measure of business confidence. Germany’s ZEW survey could also drop to its lowest level since the 2008 financial crisis.
The UK, of course, is sharing the pain. Purchasing managers will report a collapse in manufacturing output, and the CBI’s quarterly survey of manufacturers will show huge drops in optimism, orders and output expectations.
Of course, it’s not just manufacturing that’s suffering. Thursday’s data will show that retail sales also dropped in March. Yes, there will be stronger sales for supermarkets – not just because of panic buying but simply because people are forced to eat more at home. But these usually account for only two-fifths of total sales. Much of the other three-fifths have collapsed. And, of course, even this doesn’t tell us the true scale of the harm. Retail sales account for only 30 per cent of total consumer spending, and some of the other 70 per cent – such as restaurants, cafes and pubs – has disappeared.
Worryingly, this slump comes from a poor starting point. Tuesday’s figures could show that unemployment was rising in December-February, before the impact of the coronavirus – and it has certainly increased since. And this unemployment rate was a long way from truly full employment. One sign of this fact is that annual wage inflation, at around 3.1 per cent, has fallen since the summer.
Price inflation has also fallen. Wednesday’s numbers will show a drop in consumer price index inflation in March, thanks to falling petrol prices. These data were collected in the middle of the month, and so do not capture the full extent of the fall in oil prices. Nor do they show the impact on prices of the lockdown: it’s possible this will be slightly inflationary, to the extent that supermarkets have withdrawn some special offers.
Producer price data will also show falls in both input and output price inflation as lower oil prices offset the fall in sterling. We should expect further drops next month because of falling commodity prices. As nobody is buying much, however, this is of little consequence.
