The global economy is not growing fast enough, the risk of recession is rising and policymakers must act swiftly and decisively to avert disaster. So says Christine Lagarde, head of the International Monetary Fund. As the economy enters a “dangerous new phase”, here is your watch list for significant economic events in the week ahead.
United States
Last week, as central bankers gathered in Jackson Hole, people drove the US’s economic news. This week, with numerous statistical releases scheduled, data will make the headlines.
The data deluge begins on Monday when the US government releases personal income and spending data for July. Economists view this report as a measure of the strength and future direction of the country’s economically significant consumer sector. Analysts expect personal income to have risen 0.3% and spending to have increased 0.5% from June.
Also on Monday, data from the National Association of Realtors is expected to show continued weakness in the US housing market. Economists forecast a decrease in the pending home sales index, a leading indicator for existing home sales, of 1% in July.
Another important measure of consumer health will follow on Tuesday when the Conference Board releases their consumer confidence index data for August.
Consumers tend to spend more when they are optimistic about the future of the economy so investors watch this index closely. Economists expect the August figure to drop to 52.5 from July’s already depressed 59.5 reading. A reading of 80 is considered to be consistent with a strong economy.
Next up, on Thursday, the Institute for Supply Management (ISM) will release their August manufacturing index. A figure above 50 indicates that purchasing managers surveyed by ISM expect the manufacturing sector to expand over the coming months. A score below 50 foreshadows the sector’s contraction and a score below 43 indicates recession. Economists expect August’s reading to come in at 48.5, down from 50.9 in July.
Markets will also be watching Thursday’s release of weekly jobless claims data closely. New filings have risen more than economists’ forecasts for two straight weeks. Analysts expect this week’s figure to drop to 400 000, down from the unexpectedly high 417 000 reported last week.
Finally, the most significant release of the week occurs on Friday when the US Labour Department releases the August employment situation report. The report is expected to show that US unemployment rate of 9.1% held steady in August. Analysts also expect to see an increase in non-farm employment of 67 000 from July to August. Disappointing numbers would be extremely poorly received by markets. Expect widespread coverage of this release.
Europe
Europe
Europe’s ongoing sovereign debt saga will continue to dominate economic news in the week ahead. Concerns over European banks’ exposure to potentially bad debt are mounting and the possibility of a Greek default has again assumed centre stage. Just over a month after eurozone leaders presented a united front on a second rescue package for Greece, political disagreements over collateral are raising fear levels.
Two weeks ago, Finland secured a pledge of collateral from Greece in exchange for Helsinki’s participation in the European Union’s €109-billion rescue plan. The deal caused an outcry of protest in other European capitals as Austrian, Slovakian and Slovenian officials said that collateral should be pledged to all countries. German officials, long hesitant of bailouts, said the continent’s largest economy will not back a plan that favours Finland over other countries.
By demanding collateral, leaders signalled to investors that they do not believe that the bailout package will definitively prevent a Greek debt default. Markets responded swiftly. This past Friday, according to data provider Markit, the annual cost of insuring $10-million of Greek debt increased $92 000 to $2.3-million.
With that backdrop, European finance chiefs, including European Central Bank president Jean-Claude Trichet, will brief the European Parliament on Monday about the steps they are taking to contain the crisis. Expect continuing coverage of the both the core debt issue and the related pressure on European banks throughout the week.
Asia
The financial week in Asia begins with political news out of Japan. On Monday, Japan will elect its sixth prime minister in five years. Prime Minister Naoto Kan resigned on Friday. The new leadership team will face immediate pressure to address the numerous problems facing the world’s third largest economy. Economic growth has stalled, the country’s debt rating was recently downgraded and a strong local currency, the yen, is making Japanese exports less competitive in global markets.
On Tuesday, India will release second quarter GDP figures. Economists surveyed by the Economic Times, India’s largest financial newspaper, expect figures to show 7.6 % growth for the April to June quarter, the lowest level of growth in over a year and a half. India is South Africa’s largest trading partner in south-east Asia and one of the country’s top-10 trading partners globally. Analysts will watch this release closely.
Finally, on Thursday, investors will await the release of two monthly purchasing managers’ indices (PMI) in China. PMI figures, available in most advanced economies, are an important indicator of the future health of a country’s manufacturing sector. Economists expect both indicators to show a slight improvement in manufacturing conditions in the worlds’ second biggest economy.
South Africa
South Africa’s week is chock-a-block with data releases. Stats SA will release tourism figures for May on Monday and gross domestic product (GDP) figures for the April to June quarter on Tuesday. The South African Reserve Bank will also publish data on international reserves and the bank’s monthly release of selected data on Tuesday.
On Wednesday, the South African Revenue Service will release preliminary trade data for July. On Thursday, the Bureau for Economic Research will release the Kagiso purchasing managers’ index for August, an important leading indicator for the manufacturing sector and broader economy as a whole. A reading above 50 will indicate that South Africa’s manufacturing sector is expanding. A reading below 50 will indicate contraction.
Lastly, on Friday, the National Association of Automobile Manufacturers of South Africa (Naamsa) will release monthly new vehicle sales data. This is a closely watched leading indicator so expect extensive coverage and analysis of results.
- Matt Quigley writes the weekly economic preview for the Mail & Guardian. He is a former divisional director at the US Treasury’s office of the comptroller of the currency and fiscal policy analyst at the Federal Reserve Bank of Boston.