The world economy is on the road to recovery although it is a long way from fully healed, next week’s numbers will show.
Official figures from France, Italy and Germany could show another big jump in industrial production on July. In all countries, however, output will still be well below February’s levels.
The same is likely to be true in the UK. The ONS will report a big rise in GDP in July, thanks to the shops reopening. Even so, GDP will still be well below pre-pandemic levels. Granted, further rises are likely in August as pubs and restaurants reopen. But the question remains: after a one-off release of pent-up demand, will activity continue to expand?
The Halifax is likely to report another rise in house prices. This might, though, owe as much to the stamp duty holiday as to increased demand. In the longer run, rising unemployment and low wage growth could hold down prices. And the bigger story might be not aggregate prices but shifts in demand from big city centres if working from home becomes a permanent feature.
We should also get some good news from China, where the People’s Bank of China could report that the M1 measure of the money stock has risen by almost 8 per cent in the past 12 months, its biggest increase since early 2018. This matters, because such growth has for years been a good lead indicator of growth in output and hence in demand for commodities. This could be good news, therefore, for holders of mining stocks.
In the US, we’ll see another effect of the recovery: rising inflation. The BLS could report that CPI inflation rose to around 1.3 per cent in August compared with just 0.1 per cent in May, due in part to the recovery in oil prices. The core rate (which excludes food and energy) is also likely to rise, to around 1.8 per cent. This will, however, be below the 2 per cent-plus rate we saw in the two years before the pandemic. With mass unemployment likely to weigh down on it to some extent, the Fed’s recent promise to tolerate higher inflation might not be needed, Which is one reason why markets expect the fed funds rate to stay close to zero well into 2022.
