By Chris Flood
Published: February 7 2010 20:13
Concerns over the potential for a European sovereign default will overshadow this week’s data releases, which will emphasise the uneven pace of recovery in the largest eurozone countries.
Spain has struggled to escape recession and its gross domestic product data, due to be announced on Thursday, are expected to show activity declined 0.1 per cent in the fourth quarter. This would mark a sixth consecutive quarter of falling output, and Spain’s economy has shrunk 4.6 per cent from its peak in the second quarter of 2008.
However, this represents a milder contraction than Germany’s 6.7 per cent peak-to-trough decline, but a weaker performance than France where the corresponding fall was 3.1 per cent.
Both Germany and France have since escaped recession, and the consensus figures for fourth-quarter GDP, due on Friday, are expected to show increases of 0.2 per cent and 0.5 per cent respectively.
For the eurozone as a whole, quarterly growth is expected to remain unchanged at 0.4 per cent in the fourth quarter. This would slow the year-on-year decline from 4 per cent in the third quarter to 1.9 per cent.
In the UK, the Bank of England’s latest inflation report, due on Wednesday, will offer cautious optimism on prospects for growth after the economy crawled out of recession in the final three months of last year.
UK monetary policy has entered a new phase following the decision last week to end the Bank’s asset purchase scheme. Analysts expect policymakers to indicate that quantitative easing could be restarted if the economy were to falter again.
However, inflationary pressures are rising, which presents an unwelcome complication. Inflation is likely to overshoot the Bank’s target in two years’ time if interest rates are left at current levels, but the timing of any shift in monetary policy will depend crucially on the extent of fiscal tightening after the general election.
Michael Saunders of Citigroup says gilts do not offer sufficient compensation for the UK’s inflation and fiscal risks, especially now that the asset purchase programme has ended. Mr Saunders adds that policymakers’ concerns about maintaining credibility on inflation will ensure that QE is not restarted “unless the economy worsens really sharply”.
UK trade figures, due out on Tuesday, are expected to show the deficit narrowing slightly from £2.9bn in November to £2.7bn in December. The short-term trend for export and import volumes has shown a clear improvement, and the trade balance should narrow once the car scrappage scheme ends, since this has boosted imports of foreign cars.
The week’s data releases
UK industrial production, due on Wednesday, is expected to show an increase of 0.2 per cent in December. This would slow the year-on-year decline from 6 per cent in November to 4.1 per cent. A stronger performance would suggest that the miserly increase of 0.1 per cent in fourth quarter GDP will be revised higher.
In the US, trade data for December, due on Wednesday, are expected to show the deficit narrowing slightly from $36.4bn in November to $35.4bn. This would mark a dramatic improvement of 46 per cent in the annual deficit from $695.9bn in 2008 to $376bn in 2009.
US retail sales, which are scheduled to be announced on Thursday, are expected to rise 0.3 per cent in January following a disappointing December when trading was affected by bad weather.
Copyright The Financial Times Limited 2010
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