A credible plan to address Europe’s long-running debt crisis appears to be emerging slowly but surely. With the immediate threats to the global economy posed by the continent’s deep woes fading into thebackground, markets across the world are likely to turn their attention to a slew of economic data releases scheduled for the week ahead.
United States
America faces a busy week of data releases this week, but four are likely to attract particular scrutiny.
On Tuesday, government officials will release data on last month’s durable goods orders, the number of new orders received by factories for immediate and future delivery. The number of new orders placed in December increased by 3.0% over November, when they surged by 4.2%, but are expected to have fallen 0.7% in January. Monthly fluctuations in these figures are frequent and often significant, so analysts view the data with caution.
On Wednesday, the Bureau of Economic Analysis will release the first of two monthly revisions to fourth quarter 2011 gross domestic product (GDP) figures. Last month’s advance release showed that the world’s largest economy expanded by 2.8% in the final quarter of last year, up from 1.8% in the previous. Analysts expect this rate of growth to remain unchanged in this week’s release.
On Thursday, markets will shift their focus to the government’s personal income and outlays (spending) report for January. Personal incomes rose 0.5%, month-over-month, in December and are expected to have expanded by the same rate last month. Consumer spending — which expanded by 0.4% in December — is, however, expected to have remained flat in January.
Finally, also on Thursday, the Institute for Supply Management’s manufacturing index — a gauge of future prospects for America’s industrial sector — is expected to show further improvement to a reading of 54.6 this month from 54.1 in January.
Europe
Europe appears to be slowly pulling itself back from the edge of an economic abyss, but the continent still has a long way to go. This week, economists and investors will be watching for signs of further progress.
On Monday, Germany’s Parliament is expected to approve the latest €130-billion bailout package European leaders recently negotiated with Greece. Analysts will be watching to see if Chancellor Angela Merkel needs to rely on opposition support to pass the legislation, a move many analystsfear could complicate future bailout packages.
This weekend, G-20 leaders — representing the world’s largest economies — gathered in Mexico to address the continent’s woes. Policymakers appear to be coalescing around plans to merge Europe’s temporary and permanent bailout mechanisms to create a massive €750-billion fund, but Germany fears that doing so could relieve pressure on deeply indebted countries to put their own fiscal houses in order. A clean vote in Germany’s Bundestag, some analysts believe, could soften German opposition to the plan.
On Wednesday, attention will shift from Berlin to Frankfurt as the European Central Bank will conduct the second of its three-year, long term refinancing operations (LTRO). Estimates vary widely as to the potential uptake by European financial institutions of the central bank’s offer of cheap money.
The ECB’s first three-year LTRO in December, in which they lent €489-billion at a 1.0% interest rate to eurozone banks, alleviated concerns over an imminent liquidity crisis in the European banking system. Some economists contend that the manoeuvre also boosted investors’ appetite for riskier asset and helped to stabilise the borrowing costs of some of the eurozone’s most deeply indebted nations. Most analysts expect far less from this week’s exercise.
The consensus expectation among analysts is that the uptake of Wednesday’s operation will be at around the same level as that observed in December. A much higher number would likely lead to a continuedrise in prices for riskier assets. The opposite holds true for a much lowernumber.
Asia
An Australian parliamentary leadership challenge and the release of two key economic indicators in China will likely dominate Asian economic news in the week ahead.
On Monday, Australia’s ruling Labour party held a leadership vote. Australian Prime Minister Julia Gillard called for Monday’s vote after Foreign Minister Kevin Rudd, whom she ousted as prime minister in a party coup in 2010, resigned last Wednesday with the intention of challenging her for leadership of the party.
Most analysts believe that Gillard held the vote now to prevent Rudd from building support within party ranks. If this was her strategy, it worked. Gillard beat Rudd by a vote of 71 to 31, the most convincing win by a prime minister facing a leadership challenge in modern Australian history.
On Thursday, markets will shift their focus to China as global banking giant HSBC and the state-affiliated China Federation of Logistics and Purchasing release their February purchasing managers’ index (PMI) readings. These indices are viewed by many economists and investors as strong predictors of future economic performance.
Last week, preliminary results from HSBC’s survey — representing about 85% to 90% of respondents — showed a reading of 49.7 for February, just below the 50 mark separating expansion from contraction. The government’s official PMI reading recorded a slightly higher reading of 50.5 in January and is expected to remain around this level for February.
If this week’s final reading from HSBC comes in above the 50 mark, and official figures remain so, they would provide an important psychological bump in sentiment toward the near-term future of the world’s second largest economy.
South Africa
South Africa faces a full calendar of economic data releases this week.
On Monday, Statistics South Africa (Stats SA) will release tourism data for November and liquidations figures for January.
On Tuesday, fourth quarter 2011 gross domestic product (GDP) figures are likely to dominate business headlines. Most analysts estimate that, for the year as a whole, South Africa’s economy grew by 3.1% in 2011 and, last week, the government cut its 2012 estimate of economic growth to 2.7% from the 3.4% growth rate it had estimated in October. Economists estimate that the country’s economy must grow at a rate of 7.0% annually to make a meaningful dent in the nation’s high unemployment rate.
On Wednesday, the Reserve Bank will release a host of monthly statistics as well as data on international reserves for January. The South African Revenue Service will release last month’s preliminary trade figures.
On Thursday, FNB will release its housing price index for February and the Bureau for Economic Research will release February’s purchasing managers’ index (PMI) reading.
Finally, on Friday, the National Association of Automobile Manufacturers of South Africa (Naamsa) will release new vehicle sales data.
- 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.