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Economics Weekly - UK election build-up to shine spotlight on Q1 GDP...
Economics Weekly - 19 April 2010
UK election build-up to shine spotlight on Q1 GDP...
In the UK, Friday‚Äôs preliminary Q1 GDP data release is crucial in its own right, but takes on extra importance so close to the general election on 6 May. Recently-published February industrial output figures ‚Äď which surprised on the upside ‚Äď argue for a reasonably firm GDP number. We look for an outturn of +0.4% quarter-on-quarter. Meanwhile, we look for CPI to register 3.1% in the year to March, slightly above February‚Äôs outturn of 3.0%. We see few special factors affecting the inflation arithmetic although we note that the Budget 2010 increases in tobacco and alcohol duties (with a combined impact of +0.14% monthon- month), are unlikely to feed through until April‚Äôs CPI is published on 18 May. Beyond this, the ‚Äėbigger picture‚Äô is for a high degree of spare capacity in the economy to drag on overall price pressures. Elsewhere, we look for a modest fall in March claimant unemployment (just 5k), while we expect total retail sales volumes to have expanded by 0.8% m/m. Finally, we expect the MPC‚Äôs decision in April to leave Bank Rate on hold at 0.5% and maintain its Asset Purchase Facility at ¬£200bn, to have been unanimous.
Encouragingly, Federal Reserve Chairman Ben Bernanke sounded slightly more upbeat on US economic recovery prospects at last week‚Äôs testimony before Congress. He noted that a moderate economic recovery was likely in the ‚Äúcoming quarters‚ÄĚ. For Fed-watchers at least, the comments quelled, to some extent, market fears of a so-called ‚Äėdouble-dip‚Äô. Nonetheless, complacency is ill-advised. Headwinds such as high unemployment, weak income growth and tight credit conditions have not disappeared overnight. This week‚Äôs new and existing home sales data for March will be a vital test of the nascent US economic recovery. For us, the recent fall-back in sales following the original expiry date for the first-time home-buyers tax credit tells a story about the state of underlying activity in the US housing market, despite the Fed‚Äôs efforts to revive it via purchases of mortgage-backed securities. We look for only a modest improvement in new and existing home sales with our forecasts standing at 315,000 and 5.1 million units, respectively. Meanwhile, we look for March producer prices to increase by 0.4% m/m ‚Äď compared with a flat reading expected on the ‚Äúcore‚ÄĚ measure ‚Äď reflecting the recent pick-up in oil prices. Elsewhere, we envisage the latest US leading indicators index registering a twelfth consecutive month-on-month gain, while we look for a 0.6% m/m rise in durable good orders (excluding transportation).
With reports emerging that Greece has formally sought ‚Äúconsultations‚ÄĚ, avoidance of a Greek bail-out seems increasingly unlikely despite recent efforts to provide markets with greater clarity on the terms through which a prospective package might operate. Meanwhile, this week sees a number of forward looking business surveys at the aggregate euro-zone and national levels. Relative to March, we look for April‚Äôs advance euro-zone PMI surveys to show a more moderate pace of expansion in both manufacturing and services (our forecasts stand at 56.5 and 53.9). This week also sees the release of Germany‚Äôs Ifo and ZEW surveys. For the former, we look for a modest pick-up in the business climate index to 98.3, although recent developments in Greece could compromise the extent of any improvement. For the ZEW economic sentiment survey, a healthy German equity market performance underlies our forecast of 45.5.
Mark Miller, Global Macroeconomist
Economic Research10 Gresham Street,
Lloyds TSB Corporate
London EC2V 7AE,
0207 626 - 1500
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