Global markets remain deeply unsettled. This past week, the credit rating agency Fitch discouragingly opined that “a comprehensive solution to the euro zone crisis is technically and politically beyond reach”. Elsewhere, as America’s recovery attempts to gain traction, China’s economy appears to be slowing. And South Africa continues to struggle with slow growth and high inflation. As 2011 draws to a close, here is your guide to the global economy in the week ahead.
Europe
An appearance by Europe’s central bank president before the European Parliament, results from a key business survey in Germany and the release of minutes from the Bank of England’s latest meeting are likely to dominate European economic news in the week ahead.
On Monday, European Central Bank (ECB) president Mario Draghi will appear before the European parliament’s committee on economic and monetary affairs. Investors will closely scrutinise any comments he makes about the bank’s bond buying programme.
In remarks delivered earlier this month, Draghi raised market expectations that the central bank might expand efforts to assist debt-laden European nations. Doing so could only occur, however, if the continent’s political leaders acted to end the crisis first, he said. Political action followed shortly thereafter.
At a December 9 summit, 26 of Europe’s 27 member nations announced sweeping proposals to address the now three year old crisis, including a pledge to create centralised budget controls with automatic penalties for profligate spenders. Draghi has since spoken positively about the plan — which has received poor reviews from markets more broadly — but has stopped short of pledging further ECB action in the near-term.
Many believe that, without such action, Europe’s crisis could get much worse in early 2012. Fitch spoke for a sizeable chunk of the investor community last week when the firm called for a “more active and explicit commitment from the ECB”. Anything short of an endorsement of increased bond buying by Draghi on Monday is likely to disappoint markets.
On Tuesday, attention will shift to Germany as the Ifo Institute releases its December business climate survey for Germany. Economists generally expect results to show a further decline in German business confidence.
Last Tuesday, however, December results from the Zew economic sentiment indicator — a similar confidence measure — rose, surprising many economists and marking the end of a nine month downward trend. A similarly positive surprise from Ifo would be welcome news for Europe’s struggling markets.
Finally, on Wednesday, investors will scour meeting minutes from the Bank of England’s latest gathering. Analysts will be looking for hints that policymakers might consider another round of “quantitative easing” or other stimulus action should Britain’s embattled economy deteriorate further.
United States
Several high profile economic data releases will likely capture markets’ attention in the week ahead. Investors are hoping that this week’s figures will continue to build on the better-than-expected statistics of recent weeks.
American investors are awaiting three broadly tracked measures of the country’s housing market in the week ahead. Monthly housing construction data will be released on Tuesday, existing homes sales figures on Wednesday and new home sales numbers on Friday.
Analysts expect that construction began on 8 000 more houses in November than in October, but that the number of construction permits issued in the month fell by the same amount from October’s levels. Economists expect existing home sales data to show a 2.2% improvement in November, slightly lower than the 2.3% increase they expect to see in the sale of new homes for the month.
Elsewhere on the economic calendar, government’s final statement on third quarter gross domestic product (GDP) growth — the broadest measure of the country’s economic performance — is likely to top Thursday’s news. Analysts expect figures to show that the world’s largest economy grew by 2.0%, quarter-on-quarter, in the July to September period. This would mark a meaningful improvement over the 1.3% growth rate recorded for the previous three months of the year.
One hour before American markets open on Friday, government data is expected to show a 1.9% rise in the number of durable goods orders companies received in November. This closely followed data shows how busy factories will be over coming months as they work to fill orders.
Simultaneously, the U.S. Bureau of Economic Analysis will also release November’s personal income and outlays (spending) data. Analysts expect data to show that the monthly rate of growth in personal income slowed to 0.2% in November, following a 0.4% uptick in October. Spending growth is, however, expected to pick up from 0.1% in October to 0.3% in November.
Asia
Japan’s latest trade figures and a central bank meeting will likely dominate Asian economic news this week.
On Wednesday, Japan will release November trade results. The world’s third largest economy reported a record ¥273.8-billion (R27.9-billion) trade deficit in October, frustratingly economists’ expectations for a ¥55.6-billion surplus. With the nation’s local currency, the yen, still trading at close to record post-World War II levels, analysts are not optimistic about this week’s numbers.
Later in the day, the Bank of Japan will announce its latest policy decision. The Bank is widely expected to keep its target range steady at 0.0% to 0.1%. Analysts will be reading the post-meeting statement for any revisions to the central bank’s outlook as well as for signs of additional stimulus measures.
South Africa
With no major domestic data releases scheduled, and low trading volumes expected, South African economic headlines are likely to focus on events abroad in the week ahead. Economists and investors are also likely to keep a close eye on gold prices and the rand to dollar exchange rate.
Gold prices fell for four straight trading sessions last week, hitting a two-and-a-half month low of $1 560 an ounce on Thursday. Prices rebounded on Friday, but the precious metal still recorded its biggest weekly loss in three months. The carnage may continue next week.
Gold sales by hedge funds and European banks were reportedly behind last week’s steep sell-off. As 2011 nears its end, both groups are desperate for cash. Hedge funds are scrambling for funds to pay those clients who, at the end of a difficult year, are redeeming their investments. Meanwhile, as Europe’s debt crisis deepens, European banks are finding themselves increasingly unable to access funding in the money markets. Both may find cash more useful than metal in the week ahead.
The rand, currently trading at around R8.40 to the dollar, has weakened significantly over the past year. Although this makes South African exports more price competitive, a weak rand — by making the cost of commodities, industrial inputs and other imports more expensive — is contributing to problematically high prices rises for businesses and consumers. Unfortunately, very few analysts expect relief any time soon.
- Matt Quigley writes the weekly economic preview for the Mail & Guardian. He is CEO of the African Foresight Network, a former divisional director at the US treasury department’s office of the comptroller of the currency and a former policy analyst at the Federal Reserve Bank of Boston.