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Next week's economics: Dec 7 - 11

Economic upturns in the UK and eurozone are running out of steam, next week's numbers could show.
December 3, 2020

The economic recoveries from the spring lockdowns are running out of steam, next week’s numbers will show.

Official figures in France, Italy and Germany are likely to show that industrial production slipped a little in October, following big rises since April.

In all three countries output will be almost 10 per cent below its February level, which themselves were below their previous peaks – which in France and Italy occurred as long ago as 2007. This reminds us of a fact that mustn’t be forgotten, that even before the pandemic European economies were stagnating.

Much the same is true in the UK. The Office for National Statistics (ONS) is likely to say on Friday that GDP grew only slightly in October thanks in part to the effects of localised lockdowns. This would mean that whist the economy has expanded by almost 25 per cent since April, it is still around 8 per cent smaller than it was in February. And that followed 12 months in which GDP rose by only 0.1 per cent. These figures of course pre-date November’s national lockdown, which is likely to have cut GDP by around 6 per cent.

House prices might also be slowing down. The Halifax could report that annual growth has dipped to around 7 per cent, from 7.5 per cent last month. This would suggest that the big rises we saw in the summer were indeed temporary – the effect of the stamp duty holiday and release of pent-up demand. Most economists think that rising unemployment will cap house prices next year, despite support from low mortgage rates.

We should, though, get some good news next week too.

Germany’s ZEW survey should show that finance professionals’ optimism is still above average, although it has dropped back since the summer. And the People’s Bank of China could report that growth in the M1 measure of the money stock has accelerated, from a zero year-on-year rate at the start of the year to over 9 per cent now. In the past, this has been a good lead indicator of output growth in the economy, and hence of rising commodity prices.

We might even also get some more policy easing from the European Central Bank (ECB), with perhaps an extension of its bond-buying or subsidised loan schemes. Even if we don’t, the ECB is likely to repeat its promise not to raise rates until inflation is around its target of close to 2 per cent. This could mean negative interest rates for a lot longer.