Week ahead 22nd June

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Here’s a Monday morning look ahead at the data and events relating to UK manufacturing.

 

US GDP

On Wednesday, the third estimate of US GDP is expected to confirm the contraction in output for Q1. The second estimate of GDP issued at the end of May showed GDP shrinking at an annual rate of 0.7% in the first quarter of the year.

USGDPQ12015

Seasonality in the data producing a weak reading for Q1 GDP, and subsequently reversed in the following quarters, is fairly standard for the US. However, a combination of headwinds has led us to downgrade our forecast for US GDP growth in 2015 to 2.1% from 2.3% previously.

Most of these headwinds are concentrated on the US’s net trade position. Weak growth in emerging markets, a strong dollar and a decline in crude oil and petroleum products are hurting US exports. Weaker than expected growth in the UK’s single largest export market could spell bad news for UK net trade as well, although stronger than expected consumer spending following labour market improvements remains an upside risk.

 

World trade

Also on Wednesday the CPB will publish world trade data for April 2015. So far, it has been a weak start to the year for world trade – which shrank by 1.5% in Q1 2015 – the sharpest quarterly fall since Q1 2009. This is mostly down to weakness in key emerging markets depressing import growth.

In Q1 2015, imports contracted in almost all major emerging markets: China, Russia, India, Brazil and Indonesia. These countries account for about a third of world GDP, meaning that deteriorating demand from emerging markets is also depressing advanced economies exports, which fell by 1% in Q1.

Given this unfavourable backdrop we expect the weakest growth in world trade since 2009. This also feeds into a weak outlook for UK net trade which is not expected to contribute to growth this year either.

 

Greek negotiations

Negotiations around a Greek debt deal are expected to peak this week after Eurozone finance ministers failed to reach an agreement at the Eurogroup meeting on Thursday. Negotiations are set to continue with an emergency summit of Eurozone leaders today. A deal must be reached before the 1.6bn euro debt to the IMF is due on 30th June to avoid a Greek default and subsequent ‘Grexit’.

 

Upcoming blogs

Tue: Women in engineering

Wed: World trade and airports

Thu: EEF’s productivity report

Fri: Industry 4.0

 

 

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