Viewpoint : Monthly business surveys are showing the initial effects of Brexit on the British economy, albeit with the significant interference represented by the pandemic crisis.
Weekly Economic Monitor – 29 January 2020
Intesa Sanpaolo – Research Department
Production costs and prices are rising, demand is weakening. There are also signs of a lengthening of the delivery times of goods. Not all these elements may be blamed on the exit from the single market; however, this seems to be the main reason behind the increase of inflationary pressures.
An all-out dovish FOMC : it is “premature” to even only start discussing a tapering. As the economy is “a long way from a full recovery”, and the outlook depends “significantly on the course of the virus, including the progress on vaccinations”, any indication of a change in policy will be conditioned to the overcoming of the pandemic crisis. Hence, no changes are expected at least until the autumn.
The week’s market movers
In the euro area , the first reading of national accounts data for 4Q will outline a contraction of GDP, albeit less than expected only few weeks ago, due to a decline in the services sector, offset only in part by manufacturing. Inflation is expected to rise back in January in the Eurozone as a whole (to +1.0% from -0.3% previously), in Italy (up by one tenth, to -0.3%), and in France (to +0.8% from zero). The final estimate of PMI surveys for the month of January will confirm the slowdown outlined by the first reading, with strong dispersion by sector (manufacturing still expanding as opposed to services in recessive territory, hit harder by the new restrictions). Unemployment is expected to rise both in Italy and in the Eurozone as a whole; the increase should continue in the next few months. Lastly, retail sales in the Eurozone should recover in part in December, but risk failing to follow up on the trend this month.
This week, the main economic data for January will be released in the United States. The Employment Report should show a moderate increase in non-farm payrolls, after the contraction recorded in December, and the unemployment rate is expected little changed, at 6.8%. ISM indices are forecast to remain at expansionary levels, sending positive indications on growth in 1Q 2021. December data will include construction spending, expected to remain on a sustained uptrend, supported by the residential component, whereas the trade balance is estimated to show a drop in the deficit, in light of strengthening export growth.
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