Next week could bring news of a gentle upturn in eurozone activity.
In Germany, official data could show small increases in both factory orders and industrial production – the latter after a big fall in January. Both should be consistent with activity rising a little since the autumn.
Official figures from France and Italy might not be so encouraging: output might have dipped in both countries in February. But even here the data should be consistent with a gradual improvement since late summer.
All this should be confirmed by unemployment numbers for the eurozone. These should show the jobless rate unchanged from last month at just over 8 per cent. This would be lower than in the autumn, but still well above pre-pandemic levels.
Focusing on month-to-month changes, however, disguises the bigger long-term picture, which is that the eurozone economy was struggling even before the pandemic. In both France and Italy industrial production even before the pandemic was below 2008 levels, and in Germany it had been falling since late 2017.
Perhaps the biggest sign of these problems are the unemployment numbers. These show that even at the pre-pandemic low-point, one-in-seven under 25s were out of work; the rate is now 17 per cent.
You could read these numbers as evidence that there is enormous spare capacity in the region and therefore little danger of inflation. Alternatively, they suggest that if inflation does rise significantly, it is a symptom that the region’s economy contains big mismatches and frictions between the patterns of supply and demand.
Whichever it is, the fact is that the pandemic is not the region’s only economic problem, and in fact might be distracting us from those problems.
Back in the UK, the main news will be Halifax’s report on house prices. This could show that inflation has fallen from a peak of 7.6 per cent in November to around 5 per cent. This is consistent with the boost to prices from the stamp duty holiday and the release of pent-up demand fading away.
The extension of the stamp duty holiday is likely to support prices in coming months. But uncertainty about employment and the extent to which employers will permit home-working will hold prices down – as will a lack of affordability. The big test for the market, though, will be what happens when interest rates rise. This test, though, will probably not be faced for another couple of years.
