The eurozone economy is recovering, next week’s numbers should say.
Purchasing managers could report faster growth in both manufacturing and services, thanks to receding fears of Omicron and an easing of supply shortages. Germany’s Ifo survey and the National Bank of Belgium’s measure of business confidence could also both increase for the same reasons, with the latter being well above its long-run average.
There will, however, be a note of caution. The ECB could report a slowdown in growth in the M1 measure of the money stock, especially adjusted for inflation. In the past, such slowdowns have predicted slowdowns in output growth, with a lag of a few months. Monetary growth isn’t yet so weak as to point to a sharp slowing of output, but this needs watching.
UK manufacturers are sharing in this upturn. Purchasing managers here should report increased output and orders, a picture which the CBI survey should corroborate. Both surveys, however, might report that price pressures are still a problem, which could reinforce expectations of more rises in interest rates this year.
The consumer sector, however, is not in such good shape. If the CBI’s survey matches retailers’ expectations last month it will show that sales are weak for the time of year. And Friday’s GfK survey could show that consumer confidence is falling. Both are effects of the same cause: falling real incomes. This isn’t a problem only for retailers, but also perhaps for commercial property investors.
Government finances, however, are improving. Tuesday’s figures should show it ran a surplus in January as self-assessed income tax receipts rolled in. This could put the government on course to undershoot the OBR’s forecast of £183bn of net borrowing for 2021-22 as a whole. The main significance of this is that it tells us that private sector net saving – while still high – is declining.
In the US, the main news is likely to be that the housing market is coming off the boil somewhat. S&P is likely to say that annual house price inflation has fallen, although it remains very high at over 17 per cent, while other figures should show a year-on-year fall in sales of new houses. It’s likely that rising mortgage rates will further cool the market later this year.
For now, though, this cooling isn’t greatly hurting consumer confidence. The Conference Board is likely to say that this remains well above its long-term average. Falling Covid cases and increased employment are offsetting concerns about inflation.
