Week Ahead Economic Preview: Week Of 11 July 2022

 | Jul 10, 2022 13:50

A busy week sees the release of a series of GDP data for the UK, China and Singapore, which will no doubt take centre stage. At the same time, industrial production data for Japan, Eurozone, India, China and the UK will be eyed for clues as to whether growth rates have slowed. The week will end with retail sales and sentiment data for the US.

The global trend of aggressive monetary policy tightening meanwhile looks set to continue, with Bank of Canada widely expected to deliver a 75 basis point rate hike this week, following two consecutive 50 basis point rises.

The spotlight, however, likely lies with China, which has seen lockdowns persist into the second quarter, for which GDP data are released. While the latest PMI revealed a return to growth following some recent relaxations of COVID-19 restrictions, demand growth remains weak amid the ongoing zero-COVID policy. Our forecasts currently see China (mainland) contracting in Q2 at an annualised quarterly rate of 0.17%, taking the year-on-year growth rate to 0.8%, the weakest since the pandemic lockdowns of Q1 2020.

The UK will also issue Q2 GDP estimates on Wednesday, alongside services and industrial output data, which are also likely to show an economy in decline. Although recent PMI data for the UK pointed to business activity growth, the surveys also show the cost of living crisis having hit demand growth, adding to the risk of a further UK economic contraction, and technical recession, in Q3.

A relatively quiet week for the US with only retail sales and sentiment data due on Friday. That said, retail sales figures will be watched intently to assess whether surging fuel costs have added to price pressures and forced consumers to cut back on spending, as hinted by the latest PMI data .

Elsewhere, industrial production data for the Eurozone, Japan and India will be closely watched. The former two have seen industrial production contract in recent months which is expected to be the case yet again. Meanwhile, India's manufacturing sector continues to perform strongly.

h2 Has inflation peaked?/h2

The latest global PMI data compiled by S&P Global showed companies' input costs rising at the slowest rate for four months, signalling a cooling of global consumer price inflation. While input cost inflation has moderated on previous occasions during the pandemic only to reaccelerate again, this time looks different.

First, the recent slowing of demand is greater than at any time during the pandemic other than the initial lockdowns and, importantly, has this time not been caused by pandemic containment.

Second, the recent easing of price pressures is associated with a substantial moderation of supply chain delays.

Third, the cooling of final demand is being accompanied by a shift away from inventory building, which will further reduce demand-pull pressure in input prices.

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Fourth, the recent slowdown is driving a steep pull-back in firms' expectations of growth prospects, which have now fallen to their lowest since September 2020. This drop in confidence is in turn likely to take pressure off labour demand, and wages, as well as feeding through to weaker output growth in coming months, all of which will further help reduce inflationary pressures.

A key uncertainty remains the energy prices, especially in Europe, but even energy prices are now coming under pressure from the worsening economic outlook, providing further evidence to suggest that the annual rate of CPI inflation will start to moderate - potentially substantially - in the second half of 2022.