The eurozone economy faces a nasty combination of slower growth and higher inflation, next week’s numbers will show.
Official figures will show that real GDP grew only slightly in the third quarter after a 2.2 per cent jump in the second. Consistent with this, Germany’s Ifo survey will show that businesses are reporting slower growth and weaker expectations than in the summer, while the National Bank of Belgium could say that business confidence has fallen to its lowest level since February.
An important lead indicator will also point to activity slowing further in coming months. The European Central Bank (ECB) Is likely to say that the M1 measure of the money stock has grown by around 11 per cent in the last 12 months, implying a slowdown in the inflation-adjusted growth rate since the summer. This matters, as this for years has been a good predictor of economic activity a few months later. It is still pointing to growth, just not as much as in recent months.
While activity is slowing, inflation is rising, however. Friday’s figures could show it over 3.5 per cent, its highest rate since 2008. The rate excluding food and energy is likely to be around 2 per cent, compared with 1 per cent in the summer.
We’ll see the ECB’s response to all this on Thursday. It’s likely to say high inflation is temporary and pledge to keep rates low for months.
We’ll also see a slowdown in the US. Official figures should say that real GDP growth fell in the third quarter from 6.7 per cent (annualised) to just over 3 per cent. The Conference Board is also likely to report that consumer confidence has fallen since the summer.
What’s not slowing, however, is the housing market. The S&P/Case Shiller index could show annual price rises of around 20 per cent, the highest since data began in 1993.
The UK housing market, by contrast, is cooling a little. The Bank of England could report that mortgage approvals have dipped since the summer while Nationwide could say that annual price inflation has dropped below 10 per cent. The end of the stamp duty holiday and lack of affordability are offsetting ongoing shortages of properties for sale.
Meanwhile, the CBI is likely to say that retail sales in October were only around normal for the time of year – consistent with Bank of England data showing flat consumer borrowing. The post-lockdown jump in consumer spending has been weaker than expected.
