The possibility of a Greek bankruptcy topped 90% last week, prices for insurance against default showed. With European banks facing a potential 50% loss in the value of their Greek bonds, financial stocks led jittery markets downwards on Friday. Policymakers did little to reassure investors over the weekend and Asian markets opened sharply down on Monday. As the turmoil continues, here are some economic events to watch for in the week ahead.
Europe
Europe’s deepening financial crisis will continue to dominate global economic headlines in the week ahead. Concerns are likely to centre on signs of further deterioration in government financial conditions, particularly in Greece and Italy, and on the intensifying pressure the crisis is placing on the continent’s banking sector.
Already stressed stock markets were further roiled on Friday by the resignation of Jürgen Stark, the top German official at the European Central Bank (ECB). Stark’s departure, reportedly in protest over the ECB’s bond buying programme, added to concerns that European leaders will not be able to maintain a unified policy response in the face of escalating troubles.
In addition to fallout from Stark’s departure and persistent concerns over Greece’s possible debt default, Monday’s news is likely to focus on the release of a report by the United Kingdom’s Independent Commission on Banking on how that country’s financial sector can be restructured to limit the risk of future bailouts.
Policymakers are expected to recommend that banks insulate their core retail businesses from riskier operations. With worries over profitability and funding already hurting the sector, analysts will likely focus on when the government might choose to implement the recommendations.
On Tuesday, focus will shift to the release of August inflation figures for the United Kingdom, which are expected to show a further increase from the 4.4% figure reported for July. Amid growing signs of an economic slowdown, investors are hoping for additional stimulus measures from the Bank of England. Lower than expected figures would give policymakers’ more room to expand the bank’s asset purchase programme.
Industrial production figures for the eurozone’s 16 member states will follow on Wednesday. These figures, which measure the physical output of factories, mines and utilities, are expected to show an increase of 1.5% for the month of July, after showing a drop of 0.7% in June. Weak numbers would add to Europe’s economic woes.
United States
A series of data releases, expected to show weak but continuing economic growth, and reaction to a new jobs plan announced by President Barack Obama this past Thursday, are likely to drive US economic news in the week ahead.
Beginning on Monday and probably continuing throughout the week, political analysts will be watching for Congressional reaction to the president’s $447-billion proposal. The plan to combat the country’s stubbornly high 9.1% unemployment rate calls for tax cuts, increased infrastructure spending and aid to local governments. It is thought to face an uphill battle in the Republican controlled House of Representatives, which has prioritised spending cuts above further economic stimulus.
On Wednesday, the US Census Bureau will release monthly retail sales data for August. Consumer spending accounts for over two-thirds of the world’s largest economy, so this data can have a major impact on markets. Following an increase of 0.3% in June, retail sales grew by 0.5% in July. Economists expect the dual effects of rising economic uncertainty and Hurricane Irene to have contributed to lower spending growth of 0.2% in August.
Also on Wednesday, the government will release August’s producer price index (PPI) data, a measure of price changes at the producer level. Since a portion of inflation at the producer level gets passed on to consumers, analysts watch this data closely. The index rose 0.2% in July, but economists expect figures to show a slight decrease of 0.1% in August.
Wednesday’s producer price news will be followed by a focus on consumer prices on Thursday when the government releases consumer price index (CPI) data for August. CPI is an important measure of inflation and key determinant of interest rates. Economists expect prices to have increased 0.2% in August, following a 0.5% rise in July.
Finally, two measures of the US’s industrial sector will also garner headlines on Thursday. Industrial production statistics are expected to show a slight increase of 0.1% for the month of August while the Philadelphia Federal Reserve Bank’s general business conditions index is expected to show some improvement from last month’s shockingly bad readings which sent markets tumbling by heightening recession fears.
Asia
The economic news out of Asia is likely to focus more on developments in Europe and the US than on events at home. One central bank meeting, however, will be closely watched.
The Reserve Bank of India (RBI) is set to meet on Friday. The RBI has raised rates 11 times since of March 2010 in an effort to curb India’s rising inflation. Many economists expect a half-point increase this time around. Investors will also be wathing for plans to bring back inflation indexed bonds, a plan previously denounced by India’s central bank chief.
South Africa
Troubles in the north are weighing on South Africa as weakening global demand and a strong rand are hurting South African products’ competitiveness in world markets. And data released last week showed South Africa’s economy to be in weaker shape than many economists had previously thought.
Manufacturing and mining data showed that both sectors plunged in July, falling 6% and 5.1%, respectively, year-over-year. Together these sectors account for over 20% of South Africa’s total economic output and formal employment.
In an otherwise light week for data releases, on Monday, economists will focus on the effect South Africa’s slowing growth is having on consumer confidence as the Bureau for Economic Research releases third quarter consumer confidence index (CCI) figures.
- Matt Quigley writes the weekly economic preview for the Mail & Guardian. He is a former divisional director at the United States Treasury’s office of the comptroller of the currency and fiscal policy analyst at the Federal Reserve Bank of Boston.