Week Ahead Economic Preview

• US, UK inflation and retail sales in the spotlight
• Germany, Italy, Japan and Malaysia report Q4 GDP, while eurozone sees second estimate
• China credit and monetary growth figures

Inflation and retail sales figures for both the US and UK are in focus next week as analysts search for clues on the resilience of the consumer at the start of the year. A number of countries are also publishing fourth quarter GDP figures while other key data highlights include China’s credit and financing statistics.

US inflation

Official statistics on US inflation will be gleaned for further clues as to the timing of the next Fed rate hike. Market expectations are for an annual rise of 1.8% for core inflation, similar to December. A stronger number will bolster the case for a steeper path of policy tightening.

March remains the most likely month for the Fed to raise interest rates, with markets assigning a probability of over 70% to a March rate move. IHS Markit is now seeing four rate hikes in 2018, up from three previously, on the back of robust growth, tightening labour markets and an uptick in inflation.

IHS Markit PMI surveys have already indicated a mixed but broadly encouraging start to 2018 for the US economy. Details of the survey showed that the slowdown in service sector growth could prove transitory. Furthermore, price pressures ticked higher, continuing a general upward trend, providing further support to Fed hawks.

UK data

In the UK, updates to inflation and retail sales will be watched for clues as to the health of the UK consumer. Official data are expected to show inflation edging down to 2.9% in January. Easing growth of charged prices indicated by latest PMI surveys suggests that inflation may cool further in coming months. Official retail sales data will also be released, providing a key indicator of household expenditure.

Upward revision for eurozone GDP likely

Eurostat will publish the second estimate of euro area fourth quarter GDP, which could be revised up from 0.6%. There is a trend of recent releases showing weak initial GDP estimates, which are subsequently revised higher (and more in line with the PMI). Germany is also announcing its GDP performance for the closing quarter of 2017, with market expectations of a quarterly growth rate of 0.6%, down from 0.8% logged in the third quarter.

China and Japan

In China, data on credit and monetary growth will be released, providing insights into the strength of the economy at the start of the year. Caixin PMI surveys indicated a strong start to 2018 for the Chinese economy, with the fastest growth of business activity for seven years, accompanied by an improving labour market.

Japan releases its GDP data for the fourth quarter, with expectations of an annualised rate of 0.9%, down from 2.5% in the third quarter, according to a Reuters poll. Nikkei PMI surveys showed the Japanese economy continued to enjoy robust growth at the start of 2018.

PMI suggests slower Malaysia Q4 GDP

Fourth quarter GDP figures for Malaysia will also be released, where a simple regression using PMI data suggests an annual growth rate of 5.7%, down from 6.2% in the third quarter. The Nikkei Malaysia Manufacturing PMI survey’s gauge for output exhibits an 81% correlation with official GDP data. 

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Bernard Aw, Principal Economist at IHS Markit
Tel: +65 6922 4226
Bernard.Aw@ihsmarkit.com