/ 10 October 2011

The economic week ahead: What lies beneath

Investors are anxiously awaiting a host of economic data and corporate earnings reports in the United States, Europe and China in the coming days. But the spectre of Europe’s seemingly stabilising yet still unresolved debt crisis continues to lurk in the shadows. With markets cautiously optimistic but on edge, here are the scheduled economic events likely to make headlines in the week ahead.

Europe
Economists and investors will continue to monitor Europe’s twin sovereign debt and banking crises in the week ahead, but several data releases in the UK and continental Europe may steal centre stage.

Last week, in a sign that Europe’s ongoing debt crisis is far from over, Moody’s Investors Service and Fitch Ratings cut Italy’s debt rating further. The move followed similar action by Standard & Poor’s, another rating agency, which cut the country’s rating in September for the first time in five years. Spain’s credit rating was also reduced on Friday by Fitch, and all three companies have stated that their outlook for both countries is negative.

Outgoing European Central Bank (ECB) president Jean-Claude Trichet, announcing a resumption of bond purchasing and lending by the ECB in an effort to relieve funding pressures on the continent’s banks, said last week that Europe’s economy faces “intensified downside risk”. Investors will be watching several data releases in the week ahead for hints at the magnitude of the threat.

On Monday, investors will focus on the release of August trade data for Germany, the continent’s largest economy. Economists expect that the country’s trade surplus may shrink to €10-billion, down from last year’s monthly average of €12.4-billion.

On Tuesday, attention will shift to the UK as the government releases industrial production figures for August. Analysts expect the data to show a drop in output of 0.2%, unchanged from the 0.2% drop recorded in July.

More bad news is expected from the UK on Wednesday when the government’s release of jobless claims and unemployment rate data is expected to show an increase of up to 20 000 new claims for jobless benefits. The country’s unemployment rate is expected to remain at 7.9%, using the International Labour Organisation’s definition.

Attention will shift back to the European continent later on Wednesday as officials release euro zone industrial production data for August. Last week, the region’s purchasing managers’ index (PMI) entered contraction territory with a reading of 49.1%. Economists expect that industrial production statistics may disappoint as well, possibly dropping 0.7% in August.

Finally, on Friday, analysts will be watching for the latest euro zone index of consumer prices, the main measure of inflation used by the European Central Bank. The index is expected to confirm that consumer prices rose 3.0%, year-over-year, in September, heightening expectations for a rate cut by the European Central Bank in the near future.

United States
Will America’s feeble economy continue to limp along at a low-growth pace or fall back into recession? Friday’s better than expected jobs data strengthened the case of the relative optimists, but investors will scrutinise this week’s economic data releases closely for stronger indications either way.

On Thursday, the Bureau of Economic Analysis will release international trade figures for August. Import data shows the demand for foreign goods in the United States and exports data shows the demand for American goods overseas. The trade balance or deficit shows the gap between the two sets of figures. A widening trade deficit exerts a drag on domestic economic growth, while a shrinking deficit contributes to economic expansion.

America’s trade gap narrowed in July to $44.8-billion from $51.6-billion in June as export levels grew at their fastest pace in four months. Analysts expect August’s data to show a slight increase in the trade gap to $46-billion.

Also on Thursday, the government will release weekly numbers for new jobless benefit claims. America’s high 9.1% unemployment rate is at the top of economists’ lists of concerns, so this weekly release is a major market-moving event. Analysts expect to see 405 000 filings in Thursday’s data, up from 401 000 filings for the first week in October.

Finally, on Friday, the Commerce Department will release retail sales figures for September, an important indicator of the economy’s future health. After rising by 0.3% in July, retail sales figures flattened to zero in August. The consensus forecast among economists surveyed by the financial news and data provider Bloomberg is for an increase of 0.8% in September’s data. Better than expected results would help to alleviate recession fears.

Asia
Investors are likely to focus on Australian jobs data, a South Korean decision on interest rates and Chinese inflation data in the week ahead. Japanese markets will be closed on Monday for a national holiday.

On Thursday, Australia will release unemployment data for September. Australia’s unemployment rate rose unexpectedly to a 10-month high of 5.3% in August as the economy shed 9 700 jobs. After several months of disappointing data, many analysts expect Thursday’s data release to show a gain of up to 10 000 jobs.

Also on Thursday, South Korea’s central bank will consider changes to the country’s interest rate. The Bank of Korea’s governor, Kim Choong-soo, stated in August that policymakers would keep rates on hold at 3.25% until the global economy shows signs of stabilising, but inflationary pressures and a weakening local currency has some economists predicting a rate rise.

On Friday, China will release consumer price index (CPI) and producer price index (PPI) data for September, both measures of rising prices. Consumer inflation eased in August to 6.2% from the 6.5% rate recorded in July. Economists expect September’s data to show a further drop to 6.1%.

A recent series of disappointing data has led some economists to fear that China, the world’s second largest economy, is headed for a “hard landing”, a rapid shift to slow economic growth caused by government attempts to control inflation. Easing price inflation would allow China’s central bank to keep interest rates on-hold or even lower them later in the year, helping to alleviate these fears.

South Africa
Stats SA’s release of August manufacturing data on Wednesday is the most significant event on South Africa’s economic calendar this week.

Manufacturing, which accounts for roughly 15% of the country’s economy, contracted more than expected in July. Output dropped a seasonally-adjusted 6% in the month as hundreds of thousands of workers went on strike.

This week’s data release may show diminished production in August as well. Global economic weakness depressed demand throughout the month and a structural failure at the steelmaker ArcelorMittal’s Newcastle plant cut steel output by 445 000 metric tons in August.

  • 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