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Consumer sentiment in the eurozone has been in the doldrums for much of the past two years and this is unlikely to change when the latest retail sales data is published on Wednesday, despite an easing of price pressures.
The volume of retail sales across the 20 countries that share the euro is likely to have fallen for a third consecutive month in September as high interest rates, falling house prices and a deteriorating economic outlook weighed on spending.
National data published in the past week showed German retail sales fell 0.8 per cent in September from the previous month, which looks set to more than offset 0.2 per cent increases in the equivalent figures for France and Spain.
Consumer confidence in the EU has been falling since August and the European Commission’s latest survey found sentiment among companies in the retail sector had “decreased markedly” in October.
“While consumers are worrying less about inflation than in early 2023, they are now becoming more concerned about the overall economic outlook,” said Holger Schmieding, chief economist at German investment bank Berenberg.
Separate figures to be published on Tuesday will detail how quickly the price of goods produced by eurozone companies fell in September, providing a signal about how quickly inflationary pressures are easing in the bloc. A further sharp fall looks likely after German producer prices fell 14.7 per cent in September, the fastest annual rate since records began. Martin Arnold
How is the UK economy coping under the weight of higher interest rates?
Investors will look at the UK’s gross domestic product figures for the third quarter published on Friday for an indication of how the economy is coping under the weight of higher borrowing costs.
Surprisingly negative news could prompt investors to adjust their outlook for when they think the Bank of England will start cutting interest rates, which is not priced in until mid-2024.
Economists polled by Reuters forecast that the UK economy shrank 0.1 per cent in the third quarter compared with the previous three months. They also expect a 0.1 month-on-month drop in September.
Such a contraction “would put the UK economy into the early stages of what we think will be a shallow recession, extending until the first quarter of 2024”, said Sandra Horsfield, an economist at Investec.
Horsfield’s forecast, which is in line with consensus, is marginally below that of the BoE in its November monetary policy report. The bank expects that the economy flatlined in the third quarter after growing by 0.2 per cent in the three months to June.
It also expects a marginal 0.1 per cent increase in the final quarter and no growth in 2024. By the third quarter of 2025, UK GDP will be only 0.9 per cent higher than in the same period of 2022, according to the bank’s projections.
“UK economic growth is slowing,” stated the BoE. “Some of this slowing is likely to reflect the impact of the tightening in monetary policy that has been needed to combat high inflation.” Valentina Romei
Will Australia’s central bank keep rates on hold for a fifth straight month?
The first Tuesday of November is a special day for Australians as it is the date of the Melbourne Cup horse race, also known as “the race that stops a nation” due its popularity.
Michele Bullock, the recently appointed governor of the Reserve Bank of Australia, may be ready to play party pooper, however, as the board of the central bank meets and decides whether to raise interest rates or to hold for a fifth straight month.
Recent data on inflation and retail sales have put pressure on the RBA to take a more hawkish stance. Even the IMF has waded in, saying that government spending on infrastructure, sticky inflation, rising house prices and low unemployment suggest the economy is at full capacity — meaning rates should rise.
Bullock, in her first public speech as governor, reiterated her predecessor Philip Lowe’s view that the bank has a “low tolerance” for high inflation, rather than changing tone on the bank’s aim to get inflation, currently 5.4 per cent, back to the target 2-3 per cent range.
Gareth Aird, head of Australian economics at bank CBA, said he now ascribes an 80 per cent chance of a 0.25 percentage point rise in rates to 4.35 per cent on Melbourne Cup Day and expects the bank to raise its 2023 and 2024 inflation targets as well.
“For households on a floating rate mortgage, another rate rise just before Christmas would further tighten budgets. And it would also send a clear signal that the tightening cycle is not necessarily over,” Aird said. Nic Fildes
