Germany and France escaped recession in the second quarter and this week’s data releases will show how vigorously the pace of recovery has quickened in both economies. 
The worldwide recession that followed the credit crunch was tightly synchronised as activity contracted sharply and simultaneously across the global economy. How well countries have responded to the medicine provided by central banks, and whether marked differences appear across different countries in the recovery phase, will be a key theme for analysts looking into 2010.
German trade and industrial production data for September, due out on Monday, should show continued improvement. Industrial output is expected to have risen 1.7 per cent, which would mean output rose 2.8 per cent in the third quarter following a drop of 0.4 per cent in the previous three months.
Germany’s trade surplus is seen rising from €10.6bn in August to €11.8bn in September, reflecting the improvement in earlier survey data for export orders. For the third quarter as a whole, the nominal trade surplus should rise from €30.6bn in the second quarter to €34.9bn.
The initial estimate for Germany’s third quarter gross domestic product, due on Friday, should show an increase of 0.8 per cent following the 0.3 per cent rise in the second quarter. This would slow the year-on-year decline from 5.9 per cent to 4.9 per cent.
Consumer spending has been boosted by the government’s car scrappage scheme and exports (net) also added to overall GDP growth. Inventories should swing from being a drag in the second quarter to making a positive contribution to overall growth as destocking ends.
France will also release its initial third-quarter GDP report on Friday. The consensus forecast is for GDP to expand 0.6 per cent after a rise of 0.3 per cent in the second quarter, helped by a robust contribution from net trade and industrial production, where again the government car scrappage scheme has boosted activity. The year-on-year decline should slow from 2.8 per cent to 1.9 per cent.
The improvement in Germany and France should help the overall eurozone economy escape recession in the third quarter. The initial estimate, due on Friday, should show a rise of 0.6 per cent in eurozone GDP after a fall of 0.2 per cent in the previous three months. This would soften the year-on-year declines from 4.8 per cent to 3.9 per cent. Spain, like the UK, remained stuck in recession in the third quarter.
The UK releases trade data for September, due out on Tuesday, which are expected to show that the overall deficit (goods and services) shrank from £2.3bn in August to £2.1bn.
The Week’s Data Releases
A calendar of key statistical reports due out over the next seven days from Informa Global Markets
The Bank of England’s Inflation Report, due out on Wednesday – which informed last week’s decision to extend quantitative easing by £25bn to £200bn – will provide the first indications of how policymakers expect the economy to perform without the support of the asset purchase programme.
The question of when interest rates might be expected to start increasing remains problematic in the absence of clear evidence that the economy has embarked on a self-sustaining recovery.
The timing of monetary tightening will be affected by the extent of any future fiscal consolidation, which should become clearer in November’s pre-Budget report. Should the UK’s economic recovery prove weaker than elsewhere, this would limit room for manoeuvre on public spending for any government after May’s election.
Stuart Green, economist at HSBC, said that he “struggle(s) to see fiscal tightening beginning in earnest in 2010” but thinks interest rates could start to rise from May, due to signs of inflationary pressures. This year’s increase in oil prices and rising import prices due to sterling’s weakness should push headline inflation higher in coming months.
UK labour market data for September, also due on Wednesday, will again show very subdued pay growth, with headline earnings up by nearly 1.5 per cent. Private sector pay settlements look likely to rise in 2010 after one-third of companies imposed pay freezes this year. Any growth in household’s real disposable incomes, however, will remain very modest, potentially intensifying deflationary pressures in the UK economy.
The unemployment rate is seen rising from 7.9 per cent in August to 8 per cent and a peak is not expected for some months yet. However, the pace of job shedding has slowed and some survey’s are already suggesting positive job creation in both full and part-time positions.
