The possibility of some long-awaited good news from Europe, key economic reports from the world’s two largest economies and a budget speech here at home will keep economists and investors riveted in the week ahead.
United States
Two closely-followed reports on America’s housing market are likely to captivate economists and investors this week.
America’s housing market is critical to the overall health of the country’s economy. For the majority of Americans, their house is their most valuable asset. When the value of this asset decreases, people tend to feel less wealthy. This perceived loss of wealth leads many consumers to cut back on spending, a phenomenon US Federal Reserve chair Ben Bernanke attempted to quantify last week.
“Recent declines in housing wealth may be reducing consumer spending between $200-billion and $375-billion per year,” Bernanke told a gathering of the National Association of Home Builders in Florida on Friday.
This week, many are hoping that reports covering existing and new home sales – scheduled for release on Wednesday and Friday, respectively – may show signs that America’s housing market is finally stabilising.
Last month’s report from the National Association of Realtors showed that existing home sales increased 5.0% in December to an annual rate of 4.61-million units, an 11-month high, but that the median sales price fell 2.5%, year-over-year, to $164 500. For 2011 as a whole, the average price dropped 3.9% to $166 000, their lowest level in 10-years.
Analysts expect existing sales to have risen for a fourth straight month in January. The median forecast among economists surveyed by Bloomberg is for an annualised rate of 4.69-million units.
Unlike existing sales, new single-family home sales and prices fell in December for the first time in four months. Sales decreased 2.2% to an annualised rate of 307 000 units. The median price of new homes fell 2.5% to $210 300, the biggest drop in four months. For the year as a whole, 2011 was the weakest for new home sales on records dating back nearly 50-years.
Analysts expect to see some improvement in January’s data. The median forecast among economists surveyed by Bloomberg is for an increase of 8 000 units over December’s level.
Europe
The fate of a bailout package for Greece and the release of key leading indicators elsewhere on the continent will dominate European economic news this week.
On Saturday, Greek officials signed-off on a final series of austerity measures sought by the European Union, European Central Bank and International Monetary Fund as a precondition to receiving a €130-billion bailout package.
Greek Prime Minister Lucas Papademos said that officials found ways to make the contentious cuts necessary to lower spending by €325-billion. This clears the way for final approval of the rescue plan by European finance ministers on Monday.
Speaking in a television interview on Sunday, when asked if ministers would approve the bailout, Austrian Finance Minister Maria Fekter said, “I am confident that they will approve the package, but with conditions.”
Without aid, Greek officials have said that they would not have enough money to make €14.5-billion in bond payments due in March. Failure to do so would precipitate a debt default, the first ever for the euro zone. This would wreak havoc in an already deeply troubled region.
The eurozone’s economy shrank in the final quarter of 2011, largely as a result of the continent’s long-running sovereign debt crisis. Many economists fear that output will shrink in the first quarter of 2012 as well. This would mean that most of Europe would be in recession – generally defined as two consecutive quarters of negative economic growth.
But good news could be around the corner. Wednesday will see the release of February’s purchasing managers’ index (PMI) readings for the euro zone, Germany and France. Analysts expect these measures, though still signalling contraction in some areas, will show broad signs of improvement.
Asia
A closely watched gauge of China’s massive manufacturing sector and an announcement from the country’s largest internet commerce company are the two high-profile items on an otherwise sparse Asian economic calendar this week.
On Tuesday, the global bank HSBC will publish preliminary results from its monthly survey of manufacturers. January’s purchasing managers’ index (PMI) recorded a reading of 48.8, up slightly from December’s reading of 48.7, but just below the 50.0 mark separating expansion from contraction. Investors are hoping for continued improvement in this month’s figures.
On the corporate front, Alibaba – the Chinese internet giant – will release full year results this week. Markets will also be watching to see if the company confirms rumours that it plans to take its subsidiary, Alibaba.com, private.
Alibaba.com’s shares have suffered following a corporate scandal last year in which an internal probe revealed that certain employees defrauded customers. The company’s share price has dropped by more than 45% since then. By taking the subsidiary private, Alibaba’s executives could focus on developing the popular business without having to deal the reporting requirements and other pressures of being a listed concern.
South Africa
The big event on South Africa’s economic calendar this week is Wednesday’s national budget address. Audiences at home and abroad will be paying close attention to how Finance Minister Pravin Gordhan plans to meet demands for increased government spending in the face of decreasing revenues.
Over the last three months, two international ratings agencies have downgraded their outlook for South Africa because of concerns about the country’s growing budget deficit. In October’s three-year medium term fiscal framework, the National Treasury said that the budget deficit for the 2011/2012 financial year would likely widen to 5.5% of gross domestic product from 5.0% in the previous year.
For the new fiscal year, most economists believe that South Africa is likely to grow at a lower rate than the 3.4% government predicted for 2012, meaning tax revenues will remain limited. For many analysts, this means that the deficit is likely to widen in the next fiscal year rather than narrow as officials had previously predicted.
Elsewhere on the economic calendar, Statistics South Africa will release last month’s consumer price index (CPI) on Wednesday and producer price index (PPI) on Friday. Consumer inflation breached the 6.0% upper end of the Reserve Bank’s target range in November and remained at 6.1% in December, so economists and investors will be studying this week’s release closely.
- Matt Quigley writes the weekly economic preview for the Mail & Guardian. He is the chief executive of an economic research and forecasting firm and formerly worked for the US Treasury Department and Federal Reserve Bank of Boston. His blog on the South African economy can be found here.