The world economy is recovering from pandemic lockdowns, next week’s numbers could show.
Official figures from both the US and eurozone should show decent rises in industrial production, although in both cases output will probably be still well below pre-lockdown levels. There might also be evidence that the recovery could continue. The New York Fed’s survey of manufacturers plus the ZEW survey of German financial professionals could both show that optimism is well above long-run averages.
The UK is sharing in this upturn. Tuesday’s figures should show that GDP rose in May as the lockdown was partially eased. This would, however, put us on course for a fall in GDP in the second quarter of around 15 per cent. Although this would be by far the biggest drop since records began in 1955, it would be much less than the Office for Budget Responsibility predicted.
A recovery in output, though, does not mean a recovery in employment. Next week’s numbers will show that unemployment has risen – a fact that will be more evident in the single-month estimate than in the headline data that refer to March-May averages. Other figures will show that average earnings are falling as hours and bonuses are cut and that vacancies have halved from their pre-lockdown levels. That means the unemployed will find it hard to get back into work. It’s hard to reconcile such grim labour market news with hopes of a strong V-shaped recovery.
Inflation is also starting to return to normal. CPI inflation in both the UK and US is likely to rise from very low levels, if only thanks to the recent pick-up in oil prices. In the UK, though, producer prices – both input and output – will be down year on year. In this sense, we are in deflation.
This does not, however, mean that central banks will tighten policy any time soon. Quite the opposite. At Thursday’s press conference the European Central Bank is likely to reiterate that it will continue quantitative easing and keep interest rates negative well into next year – and perhaps beyond.
Equity investors will get a warning next week to be wary of a strong recovery. US Treasury figures could show that foreigners have been increasingly net buyers of US equities in recent months. For much of the last 25 years, such buying has been a sign of high sentiment and therefore a warning of lower returns on global equities generally in the following 12 months.
