We’ll get evidence next week of the economic damage done by the Covid-19 lockdowns. Official figures could show that real GDP fell by almost 10 per cent in the second quarter in both the eurozone and US: because the latter annualise the reported data, it will show a drop of around 30 per cent. Both would be record falls.
There will, though, also be evidence of post-lockdown recoveries. In the US, we should see a second successive big monthly rises in both durable goods orders and consumer confidence. In Japan, official data could show a jump in industrial production in June after big drops in April and May. And in the eurozone, the ECB could report that growth in the narrow money stock (M1) has accelerated to a five-year high: in the past, this has been a decent lead indicator of stronger economic growth.
We’ll also see signs that monetary policy will continue to support the recoveries. On Wednesday the Fed is likely to repeat its promise to keep interest rates near zero until employment has recovered – which implies no rise until at least later next year. And while Friday’s data could show a small rise in eurozone CPI inflation thanks to higher oil prices, the 'core' inflation rate (which excludes food and energy) should remain stable at just over 1 per cent. This means the ECB need not fret about inflation and so can keep policy loose for many months.
In the UK, however, we might see doubts about the likelihood of a V-shaped recovery. The CBI could report that retail sales in early July were well down year on year despite the reopening of shops – and that retailers don’t expect any strong upturn next month.
Also, the Nationwide could report that house prices are now lower than they were a year ago. In one sense, this is artificial as it reflects a near shutdown of the market: the Bank of England will report that mortgage approvals are only around one-tenth of their pre-lockdown levels. I another sense, it will draw our attention to the possibility that the recession will have lasting effects on the market in creating both uncertainty and mass unemployment.
Bank of England monetary data on Wednesday will also be interesting. Recently, these have shown big rises in households’ cash holdings and falls in consumer borrowing, as the lockdown forced us to save. This might, however, change in coming months as rising joblessness forces some people to eat into their savings while the reopening of the shops diminishes the degree of forced saving.
