The economic week ahead: Europe's existential crisis
The eurozone’s debt crisis will continue to dominate economic news this week. The potential for a Greek exit from the currency bloc and deteriorating conditions in Spain’s banking system have global markets on edge. Europe’s leaders will meet to address the situation on Wednesday.
Here at home, the South African Reserve Bank will gather to consider interest rates and Statistics South Africa will release inflation figures. Overseas, America will issue key housing numbers, Japan will decide on interest rates and Brazil may announce stimulus measures.
Historically, the northern spring is the most important time of year for America’s housing market, long-suffering from low demand and oversupply. This week, investors will get a glimpse at two key economic indicators for the beleaguered sector.
Economists are hoping that extraordinarily low financing costs and rising consumer confidence may be starting to bring more buyers to the table.
On Tuesday, analysts surveyed by Dow Jones expect existing homes sales data from the National Association of Realtors to show an uptick in the annual rate of sales from 4.48-million units in March to 4.60-million in April.
On Wednesday, new home sales are also expected to show improvement, rising from an annual pace of 328 000 units in March to 335 000 in April.
Elsewhere on the calendar, Thursday will bring durable goods orders – a gauge of factory activity – and weekly jobless claims data. Durable goods orders plunged 4.2% in March, the most in three years. Economists expect to see only slight growth of 0.5% in April’s numbers.
This week will also see the release of monthly retail sales figures in Mexico on Tuesday and Canada on Wednesday. Mexico’s gross domestic product (GDP) figures will follow on Thursday.
Leaders from the European Union’s 27 member states will assemble in Brussels on Wednesday for a crisis meeting. The gathering is expected to focus on newly-elected French President François Hollande’s calls to promote growth in the struggling region.
Speaking in the US on Saturday, Hollande said that he will propose euro bonds – debt issued for the eurozone as a whole, backed by the bloc’s 17 member nations – among other measures. The French leader may also repeat his call to allow the European Central Bank (ECB) to lend directly to governments.
Germany – Europe’s largest economy – has opposed both of these ideas in the past. German Chancellor Angela Merkel and her government have instead insisted upon the importance of continued austerity measures as the best way to reduce governments’ cripplingly high debt levels and restore investor confidence in the region.
With no agreement expected to emerge from this week’s meeting, global markets are likely to remain on edge in the run-up to next month’s Greek elections.
Beyond politics, the main items on the European data calendar this week are purchasing managers’ index (PMI) readings for Germany, France and the euro zone as a whole, all scheduled for release on Thursday.
The Bank of Japan will conclude a two-day policy meeting on Wednesday. Markets are not expecting a change in rates but will be on the lookout for further stimulus to boost growth and weaken the yen.
The same day, Japan will release trade data. Economists surveyed by Bloomberg expect to see a deficit of ¥470.8-billion in April’s numbers, up from ¥84.5-billion in March.
Attention will shift to China on Thursday for HSBC’s preliminary purchasing managers’ index (PMI) results for May. This indicator of future activity in China’s massive manufacturing sector has remained below the 50 mark separating expansion from contraction for the past six months, signalling a continuing slowdown in the world’s second largest economy.
This week will also see the release of economic growth figures in Thailand on Monday, Malaysia on Wednesday and Taiwan on Thursday. Consumer inflation readings will appear in Hong Kong on Tuesday, Singapore and Malaysia on Wednesday and Japan on Thursday.
A slew of trade data is also scheduled for release over the coming days. Monday will bring export orders numbers in Taiwan and Thailand’s trade balance. New Zealand and the Philippines will follow with their trade balances on Wednesday and Friday, respectively.
Brazil will remain in the spotlight after figures released last week showed that the region’s largest economy continued to struggle in March. The central bank’s IBC-Br economic activity index – a proxy for GDP growth – contracted 0.35% in March, confounding economists’ expectations for a 0.5% rise.
In response to the weak figures, Guido Mantega – the county’s finance minister – told local newspaper Valor Economicothat the government may announce additional stimulus measures to boost credit as early as this week. Investors will be watching closely.
Although Mantega did not mention specifics, local media reported that President Dilma Rousseff’s administration is considering cutting taxes on car loans to help manufacturers sell down their excess inventories among other measures.
Despite extensive stimulus measures and a series of interest rate cuts, Brazil’s economy has been struggling since almost falling into recession during the second half of last year and is forecast to grow by a mere 0.4%, quarter on quarter, in the first quarter of 2012.
Elsewhere in the region, Venezuela will release unemployment data on Monday. Argentina will issue trade figures on Tuesday and industrial production and consumer confidence numbers on Thursday. Columbia’s central bank meets on Friday.
Statistics South Africa (Stats SA) will release March’s tourism, transport and food and beverage figures on Monday but the two big events on South Africa’s economic calendar will occur later in the week.
On Wednesday, Stats SA will release April’s consumer price index (CPI) – a measure of price pressures at the consumer level. Analysts surveyed by I-Net Bridge expect the data to show that the consumer inflation picked up last month to 6.2%, year on year, from 6% in March.
On Thursday, the monetary policy committee will announce their latest interest rates decision. In the face of lacklustre growth and continuing threats to the domestic economy from overseas, economists expect officials to leave the repo rate on hold at 5.5% for the ninth consecutive time.
Elsewhere on the continent, Nigeria’s central bank will hold a policy meeting on Tuesday. Markets expect officials in Africa’s second largest economy and top energy producer to leave rates on hold at 12%, despite a recent uptick in inflation.
Nigeria’s consumer price index rose to 12.9% last month from 12.1% in April. The central bank expects price pressures to continue over the coming months, peaking between 14% and 15% during the third quarter of 2012.
Matt Quigley writes the weekly economic preview for the Mail & Guardian. His blog on the South African economy can be found at www.thoughtleader.co.za/mattquigley.