Economic week ahead: ECB’s potential rate cuts

Europe
The European Central Bank (ECB) is likely to dominate the economic news from Europe this week. Most analysts believe that the ECB's governing council will reduce the bank's benchmark rate by 25-basis points from its current 0.75%, already a record low, following their meeting in Bratislava on Thursday. Officials last cut the refinancing rate in July of last year.

A rate cut, though symbolically important, is unlikely to make much of a difference to the continent's grim economic prospects. Speaking last week, ECB board member Jörg Asmussen highlighted the limits policymakers face. 

"Due to impaired monetary policy transmission, the pass-through of rate cuts to the periphery would be limited, and this is where they are most needed," Asmussen said in a reference to the continent's troubled southern economies.  

"Many people ask why doesn't the ECB do more, why doesn't it copy the measures of the Bank of England, the [Federal Reserve] or the Bank of Japan," he said. 

"We have to respect our mandate, which is price stability. That means that there are certain ideas," he said, alluding to the aggressive quantitative easing programmes, inflation and employment targets of the three central banks he mentioned, "that we simply cannot entertain". 

A recent raft of weak data has cast doubt on the ECB's forecast that growth will rebound in the second half of 2013. But with the ECB's ability to stimulate growth increasing limited, most economists believe that the continent's economic fate will not change until governments drop their focus on austerity. 

North America
This week's Federal Reserve meeting and April's monthly jobs report are the big items on America's economic calendar. 

The Federal Reserve's policy-setting arm, the Federal Open Market Committee, will begin its two-day meeting on Tuesday. Given a recent string of lacklustre data releases, including last week's disappointing gross domestic product (GDP) figures, markets expect Governor Ben Bernanke and his colleagues to leave rates on hold. Consensus is that officials will not alter the size of the central bank's quantitative easing programme – an $85-billion per month bond buying initiative – at this week's meeting either. 

Policymakers have said that they will continue to pursue an accommodative monetary policy until the US labour market shows signs of improvement. Those signs are unlikely to materialise in this month's jobs data. 

Markets expect Friday's nonfarm payrolls report to show that employers added 153 000 positions in April. This would be an improvement on March's disappointing 88 000 tally, but nowhere near a large enough number to make a dent in the country's 7.6% unemployment rate. 

Other notable releases scheduled over the coming days include Monday's personal income and outlays (spending) report, Wednesday's Institute for Supply Management manufacturing index and Thursday's international trade and weekly jobless figures. 

Beyond economic data, investors will continue to keep an eye on first quarter corporate earnings reports. Facebook and LinkedIn are this week's highest profile reporters. The two social networking giants will release first quarter results after US markets close on Wednesday and Thursday respectively. 

Asia
Japan's monthly data dump will dominate Asia's economic calendar this week. Officials will release last month's industrial production, employment, household spending, retail sales and housing starts data on Tuesday. 

Economists surveyed by Market News International expect March's industrial production data to show a fourth consecutive month-on-month rise. Output likely rose by 0.4% in March, down from 0.6% in February.  

The ministry of internal affairs and communications' unemployment release is expected to show that Japan's jobless rate fell from 4.3% in February to 4.2% in March. Separate data from the ministry of health, labour and welfare will probably show that the ratio of job offers to job seekers rose to 0.86 from 0.85 over the same period. 

Household spending data is forecast to show a 1.6% rise in March from a year earlier, up from a 0.8% rise in February, but lower than January's 2.4% year-on-year gain. Retail sales likely rose 0.5% in March from a year earlier, the first rise in three months. 

Finally, commencement of new housing construction is expected to have picked up further pace last month. Economists expect the ministry of land, infrastructure, transport and tourism's data to show that housing starts rose 6.2%, year on year, in March to a seasonally adjusted annualised pace of 900 000 units. 

Elsewhere in the region, the China Federation of Logistics and Purchasing will release the country's official purchasing managers' index (PMI) on Wednesday. Markets expect the forward-looking measure of activity in the country's massive manufacturing sector to remain unchanged at 50.9, signalling expansion for the seventh consecutive month. 

Africa 
In a busy week for the continent, the central banks of Angola and Zambia will announce their latest rates decisions on Monday. Uganda will follow with a monetary policy announcement on Friday. 

Angola's inflation rate accelerated in March for the second consecutive month, but remains at historically low levels. The country is likely to face continuing price rises over the coming months, putting pressure on the Banco Nacional de Angola to raise rates. Officials are unlikely to do so at this week's meeting, however. 

Continuing to tread a middle path between curbing inflation and promoting economic growth, policymakers in Zambia and Uganda are likely to maintain the status quo as well, leaving rates on hold at 9.25% and 12% respectively. 

On the data calendar, Kenya will release March's overseas remittances data on Monday. Ghana will report last month's gross reserves figures, Morocco and Namibia will each report March's M3 money supply and Nigeria will issue March's private sector credit extension numbers on Monday or Tuesday. Kenya and Uganda will report consumer price index readings on Tuesday. 

South Africa – the continent's largest economy – will release private sector credit, M3 money supply and trade balance data on Tuesday. Consensus is that credit extension slowed to 7.23% year on year growth in March from 7.88% growth in February. Money supply growth likely eased similarly. The country's trade deficit likely narrowed to R8.5-billion in March from R9.5-billion in February.

Finally, on Thursday, South Africa's PMI is expected to slip further below the 50-mark separating expansion from contraction, likely falling to 48.8 from 49.3 last month.

Follow Matt Quigley on Twitter

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Matt Quigley
Matt Quigley writes the weekly economic preview for the Mail & Guardian. His blog on the South African economy can be found at www.thoughtleader.co.za/mattquigley

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