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Next week's economics: 22 - 26 Nov

Next week could bring evidence of decent economic growth, albeit constrained by shortages of materials
November 18, 2021

The economic upturn is being held back by shortages and rising prices, next week’s developments could show.

Purchasing managers in the eurozone could report that growth has slowed a little in part because of the difficulty of obtaining materials and parts. Germany’s Ifo survey is likely to corroborate this, showing a steady decline in both current growth and expectations, in part because of shortages such as of chips for cars and higher prices of raw materials. Consistent with all this, the National Bank of Belgium could report a drop in business confidence, although this will remain well above its long-term average.

ECB data might also hint at a slowdown. These could show a slight slowdown in annual growth in the M1 measure of the money stock, implying a marked slowdown in inflation-adjusted growth thereof. This matters, as this has in the past been a good lead indicator of output growth. It is pointing to a cooling off in activity – not a sharp slowdown, but a gentle one.

UK figures might show much the same. Purchasing managers should report that rising costs and prices are crimping activity slightly, although growth will still be respectable. And the CBI is likely to say that manufacturers are enjoying strong orders, but are finding it difficult to fulfil them because of higher costs and shortages, of both materials and labour.

A similar thing might be true in retailing. The CBI’s survey could say that sales are only around normal for the time of year but that stocks are very low – perhaps so low as to constrain Christmas sales.

While all this is bad for activity in the short term, the problems should be only temporary. In fact, this episode has shown companies the dangers in having low inventories and so might encourage them to rebuild them when conditions permit, which should help support economic activity next year.

In the US, meanwhile, we’ll get important figures on the housing market. Sales of both new and pre-owned homes might be lower than a year ago, although this might reflect a lack of supply more than a cooling off. In fact, the National Association of Realtors will probably report that house prices are almost 15 per cent higher than a year ago.

The UK housing market, by contrast, might be coming off the boil. The Nationwide could report that house price inflation has dropped to its lowest since April. Future prospects are uncertain. A lack of properties for sale will support prices, but on the other hand a lack of affordability, squeeze on real incomes and uncertainty about interest rates will all hold prices down.