Week Ahead Economic Preview: Week Of 08 August 2022

 | Aug 05, 2022 10:58

Q2 GDP updates will be due for the UK, Russia, and Singapore in the coming week, alongside a series of inflation data for the US, India, China, Germany, France, and Italy. At the same time, India and the UK will release industrial production data while Thailand will hold a central bank meeting.

Attention turns to the UK, Russia, and Singapore where Q2 GDP figures will shed light on economic performance in the midst of geopolitical uncertainty and surging inflation. Last week saw the release of worldwide manufacturing, services, and construction PMIs which pointed to a general slowdown in growth. For the UK, output rose at a softer pace while business activity increased at a quicker rate in Russia. Singapore, meanwhile, registered a marked increase in output amid stronger client demand. Nevertheless, steep price pressures were once again evident. Besides ongoing inflationary pressures, July PMI data alluded to persisting supply constraints and difficulties sourcing material inputs. China's zero-COVID policy still poses some concern on the supply front, however.

Inflation figures will flow thick and fast this week with Italy, Germany, and the US seeing releases on Wednesday. Rates of inflation are expected to remain high with the US core inflation figure forecasted to come in around the 6.1% mark, while latest figures for Italy (Jun: 8%) and Germany (Jun: 7.6%) are expected to remain high and similar to those seen in June. Elsewhere, China has seen relatively tame rates of inflation, albeit the highest for two years. Meanwhile, India has seen inflation rates surge, though rates of increase are starting to subside, according to latest PMI data .

The Bank of Thailand will hold a central bank meeting this week, though the interest rate is expected to remain around the 0.5% mark.

Finally, sentiment data for the US will reveal how household perceptions have changed over the month. The index has remained low in light of scorching inflation, geopolitical uncertainty, and concerns over the macroeconomic environment.

h2 Rising interest rates, a little too late?/h2

Latest PMI data signalled easing inflation rates on average across the global economy. Cost pressures were at a five-month low in July, while selling price inflation eased to a ten-month low. Improvements across the supply side, thanks to the alleviation of pandemic restrictions in China, and notable falls in client appetite resulted in the waning upward pressure on cost burdens and charges for the second month running. Although remaining historically elevated, the PMI data suggest that price pressures have already peaked.

Despite cooling price pressures according to the PMI, breaking the precedent, the Bank of England have raised interest rates by a further 50 basis points to 1.75%, signalling a sixth consecutive rise in rates since last December. Furthermore, more rate hikes are also projected at the Fed.

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With global economic growth slowing sharply in July (led by developed nations), central banks once again find themselves in difficulty. It will be interesting to see if central banks adhere to a further tightening of monetary policy which they seem to be committed to. While it is necessary to ensure that the economy does not overheat as it had been in the wake of the COVID-19 recovery, it also becomes important to not seriously curtail demand and growth. That said, recessionary fears have recently been amplified while at the same time, rate hikes and rapid inflationary pressures continue, causing some concern over the future economic outlook.